A technical analysis of Peloton (PTON)

Yesterday, we looked at the fundamentals and storyline behind Peloton.

Read yesterday’s article post by clicking here.

But, that only tells us half the story.

Today, we wanted to analyze the stock chart of Peloton.

Even if you don’t believe in technical analysis, you should pay attention.

Because when enough people leverage this data to make decisions (and trust us, plenty of people do)…

It becomes a self-fulfilling prophecy.

That’s not to say that technical analysis provides a 100% guarantee.

Rather, it gives us a roadmap with a range of possibilities to design our own plan.

Technically speaking

Timing is everything.

Just because institutional advisors find the stock appealing doesn’t mean it’s the right time to jump in.

For that, it’s worth taking a look at a daily chart of the stock.

This daily chart looks at one candlestick (bar) for each trading day. 

You’ll notice there are three solid lines – black, orange, and blue.

These lines look at the average daily closing price for the stock over the last 200, 50, and 20 days respectively.

Traders use this to judge the trend of a stock, identifying general order flows over time. Think of them as the short, medium, and long-term momentum indicators.

In this chart, there are three important points to note.

First, shares trade below the 20 and 50 period moving averages. That signals short and medium-term momentum is bearish.

Second, the 20-period moving average crossed below the 50-period moving average. This says that the short-term downward momentum is stronger than the medium-term momentum. You can see this in the rapid decline in share price over the last couple of months.

Lastly, see how the stock stopped at the 200-period moving average line? That’s important.

Traders and investors look at the daily 200-period moving average to identify long-term momentum. This indicator can also act as support or resistance – places on the chart where price struggles to dip below or break above.

Collecting all this together, along with the general weakness in technology stocks the last few weeks, we can say bears (stock sellers) hold more control than bulls (buyers).

What we also know is that the current price level is important. Shares can use the 200-period moving average to stage a reversal. However, if they break and start closing multiple days below that level, it could spell further downside.

What to make of all this

A lot of this information seems contradictory. But in fact, it can produce a plan if you take a step back.

We know that Peloton continues to grow both revenues and earnings. Fundamentally, it’s a solid growth company for a portfolio.

Technically, the stock sits at a decision point. It can either trade lower or stage a rally from the current juncture. We simply won’t know until it happens.

What we can do is create an if this than this style plan for investing.

For example. I might consider buying Peloton if:

  1. Fundamentals remain constant or improve.
  2. Price rallies back above all three moving averages.
  3. The orange moving average crosses above the blue moving average.

You can design the specifics to your risk tolerances and investment tastes.

Just remember – all investments start with an idea.

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