close icon

ROKU Is the Very Definition of a Bubble Stock

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 stock on the verge of a bearish Elliott Wave reversal

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!

Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

Nvidia Stock to Take a Turn for the Worse?

Nvidia shareholders have plenty to be grateful for so far in 2019. The stock is up nearly 37% since we wrote about it in January. On the third day of the new year NVDA was hovering around $136 a share following a sharp selloff from ~$293. However, the five-wave impulse pattern formed by this plunge…

Read More »

Verizon Nears a New Record. Can it Last This Time?

Verizon stock reached its all-time high twenty years ago, in October 1999. The dot-com bubble was at full swing and few questioned the validity of the bullish thesis. Stocks were supposed to never stop rising and make everyone rich. Unfortunately, the bulls gave up as soon as Verizon touched $64. Nine years later, in October…

Read More »

Masco Stock Can Lose 50% Once it Reaches $50

Masco Corp. was founded in 1929 – the year the Great Depression started. The company survived and prospered during the next 90 years and seems to be in a healthy shape in 2019. People will always need home-improvement products and Masco will probably be around for many years. However, as the prospects for the global…

Read More »

HollyFrontier Concluding a Bearish Elliott Wave Cycle

HollyFrontier Corp. is an independent petroleum refiner with a market cap of roughly $8.8 billion. The stock reached an all-time high of $83.28 a share in June 2018. By late-May 2019, it was barely able to hold above $37, losing nearly 55% in just one year. However, HFC recovered significantly in the last four months.…

Read More »

Legg Mason Looks Bullish But Needs a Pullback

Legg Mason stock fell to $23.25 during the December 2018 rout, but managed to regain its footing as 2019 began. Two weeks ago, it touched $40.27 for a year-to-date gain of 73%, not counting the dividends. But stocks don’t rise in a straight line. After a big surge in a short time it is usually…

Read More »

A Bad Elliott Wave Omen for Accenture Investors

Accenture plc is the global leader in professional services. It partners with more than 3/4 of the companies in the Fortune 500 and serves 92 of the top 100. Through its five segments – Strategy, Consulting, Digital, Technology and Operations – Accenture covers the whole spectrum of business services expertise. However, despite its leading position,…

Read More »

NVR Stock Vulnerable to a 50% Elliott Wave Correction

NVR Inc. constructs and sells single-family detached homes, townhomes and condominium buildings. NVR stock is up by ~1100% since March 2009, climbing from $310 to roughly $3700 a share. Not bad for a company operating in one of the hardest hit sectors during the Financial Crisis. However, NVR stock lost 67% between July 2005 and…

Read More »

More analyses