DraftKings, the popular digital sports entertainment and gaming company, went public in April, 2020. It wasn’t a normal IPO, though. The company instead merged with a blank-check company, Diamond Eagle Acquisition Corp., which listed in 2019 at $10 a share.
Less than six full months later now, DKNG trades near $57 a share, down from an all-time high of $64.19 reached a few days ago. The current price gives the company a market cap of nearly $18 billion. DraftKings, however, has never been profitable, so traditional valuation metrics go out the window.
Instead, we need something which takes into account the emotions and animal spirits obviously fueling this rally. In other words, we need Elliott Wave analysis.
The daily chart of DraftKings stock shows a clear five-wave impulse, whose fifth wave might be over already. The pattern is labeled 1-2-3-4-5 and, according to the theory, is always followed by a three-wave correction in the other direction.
If the count above is correct, we can expect a notable decline back to the support area of wave 4 near $30-$25 a share. From the current price level of roughly $57 a share, this means a ~50% plunge lies ahead. In addition, the RSI indicator reveals a bearish divergence between waves 3 and 5. It turns out that in reality, the bulls are weaker than they appear.
We think $57 a share is too high a price for a company that is expected to keep losing money for years to come. The negative Elliott Wave outlook presented in this article is just the tip of the iceberg.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!