The stock's 40-day moving average has spelled trouble in the past
Streaming concern Roku Inc (NASDAQ:ROKU) has taken a breather recently, off roughly 15% in the past three months after an early December bear gap put the shares back below familiar pressure at the $150 region. Today, the stock is gearing up for its lowest close in almost three months -- down 3.4% to trade at $125.55 at last check -- and just ran into technical trouble that could drag ROKU even lower, should history repeat itself.
Specifically, Roku just came in contact with its 40-day moving average. Two similar signals have flashed since the stock first began trading in late 2017, according to Schaeffer's Senior Quantitative Analyst Rocky White. One month following these previous signals, the stock was lower both times, averaging a 12.16% drop. A similar move from its current perch would put ROKU just above the $110 area, where it hasn't traded since early October.
This recent negative price action has been exacerbated by short sellers, with short interest rising 8.8% in the last two reporting periods. Now, the 11.73 million shares sold short represent 14.3% of ROKU's available float. Continued short selling could create bigger headwinds for the equity.
A round of analyst downgrades, should ROKU continue its slide, could create additional pressure on the charts. Currently, 11 of those in coverage consider the security a "buy" or better, while only five call it a "hold" or worse.
With Roku earnings expected out in mid-February, short-term volatility expectations are running high -- meaning Roku options premiums are relatively rich at the moment. The stock's Schaeffer's Volatility Index (SVI) of 85% sits in the relatively high 42nd percentile of its annual range.
However, the streaming stock has tended to make bigger moves than what the options market has priced in, looking back 12 months. This is per Roku's Schaeffer's Volatility Scorecard (SVS), which sits at a relatively high 93, out of a possible 100.