Can DraftKings Overcome Key Technical Levels?
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Primary Chart: DraftKings Inc. Weekly Price Chart with Fibonacci Levels and Downward Trendline from All-Time Highs
DraftKings Inc., an innovative sports-betting company, has been one of the hottest stocks of this week after it beat earnings expectations and raised revenue guidance. Many are likely chasing the stock's price here without any discipline whatsoever, being driven by fear of missing out and the possibility of untold gains from a former darling of growth investors.
The magenta trendline on the primary chart, which is logarithmically scaled by the way, shows that the downtrend remains intact despite today's powerful rally. This downward trendline could be broken, by the way, if momentum is sustained by bullish seasonality and tailwinds into year end in a pre-election year. But a shorter-term down trendline has been decisively snapped with today's upside push, and this suggests near-term strength for DKNG.
Supplementary Chart A
And DKNG gapped above its key 50-day SMA today as well.
Supplementary Chart B
But this post does not recommend shorting or longing this stock; instead, its purpose is to analyze
DKNG and consider its current position in light of a severe bear market in 2021-2022 and a euphoric bull-market run in 2020-2021. With discipline, some trading profits might be made long or short given this stock's inherent volatility—the stock rose about 15% today and about 25% this week alone. But without risk management, this stock could easily obliterate anyone attempting to gather quick profits on a short-term to intermediate-term time frame.
The stock is extended here after it gapped above key moving averages. It also has reached critical resistance at the .618 Fibonacci retracement after breaking above the 50% retracement on October 31, 2023. The .618 Fibonacci retracement lies at $34.25, a few cents above the high of the week and the day today. A bit of consolidation of today's move may provide traders with a bullish view into the new year (a time frame of about 2 months) a reason to buy the dip.
But caution is warranted into 2024 and 2025—can technological innovation and earnings surprises be enough to sustain this stock? Your comments on this particular question are welcome. There may be room for some debate as macro headwinds cannot prevent rallies like the one seen in equity indices like
SPX and some growth stocks. But there is a decent likelihood that macro headwinds may work against DKNG as long as interest rates remain high and inflation does not disappear. The Federal Reserves funds rate is now at 5.25% to 5.50%, a 22-year high. And quick look at the TradingView's Financial overview shows that DKNG has not had positive net income yet. And its financial history is not that long yet: It was founded in 2011, and it has only been public since 2020. So despite the major earnings beat and positive guidance today, DKNG still lost $0.61 per share. Unprofitable growth stocks do not perform as well in high-rate environments.
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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
DraftKings Inc., an innovative sports-betting company, has been one of the hottest stocks of this week after it beat earnings expectations and raised revenue guidance. Many are likely chasing the stock's price here without any discipline whatsoever, being driven by fear of missing out and the possibility of untold gains from a former darling of growth investors.
The magenta trendline on the primary chart, which is logarithmically scaled by the way, shows that the downtrend remains intact despite today's powerful rally. This downward trendline could be broken, by the way, if momentum is sustained by bullish seasonality and tailwinds into year end in a pre-election year. But a shorter-term down trendline has been decisively snapped with today's upside push, and this suggests near-term strength for DKNG.
Supplementary Chart A
And DKNG gapped above its key 50-day SMA today as well.
Supplementary Chart B
But this post does not recommend shorting or longing this stock; instead, its purpose is to analyze
DKNG and consider its current position in light of a severe bear market in 2021-2022 and a euphoric bull-market run in 2020-2021. With discipline, some trading profits might be made long or short given this stock's inherent volatility—the stock rose about 15% today and about 25% this week alone. But without risk management, this stock could easily obliterate anyone attempting to gather quick profits on a short-term to intermediate-term time frame.The stock is extended here after it gapped above key moving averages. It also has reached critical resistance at the .618 Fibonacci retracement after breaking above the 50% retracement on October 31, 2023. The .618 Fibonacci retracement lies at $34.25, a few cents above the high of the week and the day today. A bit of consolidation of today's move may provide traders with a bullish view into the new year (a time frame of about 2 months) a reason to buy the dip.
But caution is warranted into 2024 and 2025—can technological innovation and earnings surprises be enough to sustain this stock? Your comments on this particular question are welcome. There may be room for some debate as macro headwinds cannot prevent rallies like the one seen in equity indices like
SPX and some growth stocks. But there is a decent likelihood that macro headwinds may work against DKNG as long as interest rates remain high and inflation does not disappear. The Federal Reserves funds rate is now at 5.25% to 5.50%, a 22-year high. And quick look at the TradingView's Financial overview shows that DKNG has not had positive net income yet. And its financial history is not that long yet: It was founded in 2011, and it has only been public since 2020. So despite the major earnings beat and positive guidance today, DKNG still lost $0.61 per share. Unprofitable growth stocks do not perform as well in high-rate environments. ________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Nota
DKNG has pushed about 6.4% higher on the week so far. We are seeing a decisive move above the down trendline from DKNG's all-time highs with two daily closes above it. In addition, we have now had two daily closes decisively above the .618 Fibonacci retracement of the entire downtrend from all-time highs. If the weekly candle can also close above, this suggests strength. Sometimes, a retest of a key level happens, but it doesn't have to happen.
Nota
The Bollinger Bands on the daily and weekly time frames also suggests more strength to come in the short-term time frame. Price has tagged and snapped the upper band at 2-standard deviations. It has even tagged the 3-standard deviation Bollinger Band.One technical author writes that a tag or snap of a band may indicate short-term exhaustion, but price's crossing the band suggests sufficient momentum for a new trend leg. A short cool-off period in the next couple weeks may coincide with a retest of the .618 Fibonacci level (34.25) or the down trendline from DKNG's all-time high. That would be helpful to analyze the viability of this potential short-term to intermediate term move.
On the other hand, for those with much lower entry points, the .618 Fibonacci level may be a good spot to move the stop since it is well-above breakeven for them. One never knows if a strong move like this will continue leaving all those who wished they joined in the dust or whether it will shake out early breakout buyers with a retest.
Here are the Bollinger Bands on daily and weekly timeframes.
1. Daily Time Frame (3 Standard Deviations)
2. Weekly Time Frame (3 Standard Deviations)
Note that a tag of the weekly, 3-standard deviation upper band would be very impressive, and that would be approximately $37.32, about $1.40 higher. The weekly bands are also opening suggesting the start of a bigger move.
Nota
$40 is the next resistance level as it is the base of the topping pattern from 2020-2021.Nota
Further, DKNG has risen about +15% since its breakout above the trendline shown on the primary chart. For breakout traders with a stop above the breakout / pivot, the 15% move has been decent unlike many breakouts this year that have fizzled.Nota
DKNG's rally has pushed higher and approached the resistance level marking the base of its 2020-2021 topping pattern (which pattern looks much like an H&S that worked in a textbook fashion). This level is shown clearly on the Nov. 20 update and accompanying chart at $39.93. As DKNG has approached this area, it appears to have lost some momentum, but it also hasn't reversed yet either. As discussed in prior updates, a 15.5% gain after a breakout is unlike many other equity breakouts this year. Caution is advised, of course, as a major resistance level is approached right at the end of a major rally.Nota
DKNG has been holding support at the dynamic downward trendline from which it broke out last year.Nota
DKNG clearly retested the downward trendline that it had broken last year. In mid-January 2024, this author noted that DKNG had been holding support at that dynamic trendline during weakness in broader equity markets. After holding support at the downward trendline DKNG had broken in November of last year, retest, DKNG has rallied yet again, challenging and exceeding its highs from last year. Its price is moving up deeper into the base, or lower boundary, of the large topping pattern when DKNG achieved its all-time highs.
If prices continue to push higher into this supply zone, the next area of resistance to consider would be $42.08, then the $48.17 to $50.00 range.
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