ROKU faced a number of really negative news catalysts in September and the stock dropped 45% in one month! The stock has been consolidating in October showing signs of seller exhaustion. Additionally, the short interest spiked substantially recently which might result in a potential shorsqueeze if the price starts moving higher. What happens next will determine its next big move.
There are basically two scenarios I am currently considering: a) bearish if the price drops below an important support level of $100 and b) bullish if the price clears the $110 resistance and moves above the downward slopping resistance line. See the chart below.
While the bearish case is clear, let me explore potential reasons for the bullish case. ROKU bulls have historically been good at defending important support levels. See the monthly chart below, which shows how $30 and $60 support levels held in the past and eventually led to much higher prices. If $100 level doesn’t break, we might potentially see a big move higher.
When I examine the short interest data, I see that the number of shares shorted increased by almost 3m over the last several weeks. At the average price of $130 during this period, this equals to almost $400m. Imagine the short squeeze panic if the stock starts moving higher!
Also, you probably remember my note from Thursday about the big bearish option trade on ROKU. Someone invested $5.3m into ROKU puts. This might be an outright bearish bet, of course, but also it could be a hedge against a large long position.
The ROKU stock has been one of my favorite in 2019, both on the long and short sides. I will continue to watch it carefully and play according to the price action. If I enter either a short or a long trade, I will make a note about it.