Roku Inc. is a TV streaming platform operator with over 27 million active accounts as of the end of 2018. The company held it IPO in September 2017 and is approaching its second birthday as a public company.
Unfortunately, Roku has been a money-losing company for years. Yet, it has a market cap of over $12.3 billion. ROKU stock reached an all-time high of $113.44 a share earlier this week. Yesterday, it closed slightly above $109. But instead of simply extrapolating the past trend into the future, investors should be very careful, especially when a loss-making company trades at such a rich valuation.
Obviously, Roku’s fundamentals and its stock price parted ways long time ago. In order to find out if the stock is finally approaching a point of reversal we will have to use a different approach. The Elliott Wave chart below should make the currently complacent bulls feel quite nervous.
Roku ‘s 4-hour chart reveals the stock’s entire surge from $26.30 in December 2018. Typically, a 314% price rally in seven months should be enough to ring the bubble alarm in your head. On top of that, it has shaped up to be a perfect five-wave impulse, labeled 1-2-3-4-5.
According to the Wave principle, a three-wave correction in the opposite direction follows every impulse. This means ROKU stock can soon be expected to head south for a notable retracement. The support area near $70 a share looks like reasonable bearish target.
In addition to the wave structure, the RSI indicator reveals a bearish divergence between wave 3 and 5. Roku has been a wonder stock in 2019 so far, but if this analysis is correct it is also a bubble stock that is about to pop. Careless bulls may end up with a ~35% loss from current levels.
Did you like this analysis? 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!