Roku (ROKU), the streaming TV services company, saw its share price drop 65% from its October high last year to its December low. But it looks like the stock has formed a base and could be ready to reverse trend.
Shares of Roku consolidated in a small horizontal channel last November and again in January this year. These channels formed the left and right shoulders of an inverse head and shoulders pattern on the daily chart. The head is the December 2018 low and neckline resistance is located in the $45 area. The flat 200 day moving average is currently situated just above the neckline.
A breakout above this resistance zone projects a measured upside move, calculated by taking the height of the inverse H&S pattern and adding it to the neckline. It projects a $65 upside price target.
Both the relative strength index and moving average convergence/divergence (MacD) are tracking higher and have crossed above their center lines. This is a reflection of positive price momentum and trend direction.
Chaikin money flow entered positive territory as the right shoulder of the pattern was forming last month. This suggests a shift in investor sentiment and new buying interest.
Roku shares still have a lot of work to do before the trend is officially reversed. First they need to recapture the neckline/200 day moving average resistance zone. Then it may be necessary to retest or build another base above that resistance-turned-support area, where the recent upside gains can be absorbed. This re-basing would act as a platform from which to power further gains.
If Roku cando the work and reverse trend, there is the potential for strong upside price action over the intermediate term.