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DraftKings (DKNG), one of many extra dominant gamers on this subject with a 31% market share lead, has seen such a surge in its inventory worth that it is change into overbought, in response to plenty of indicators. DKNG was filtered in a bearish Overbought with a Declining RSI scan within the StockCharts Scan Engine.

Yesterday, DraftKings reported earnings, growing its income by 44% and considerably reducing working losses whereas topping estimates in its full-year steerage. But whereas bears could also be shadowing or shorting DKNG (it has a 4.35% brief curiosity as of the top of January), many analysts and traders appear bullish on it.

So, we’re taking a look at a battle between bulls and bears on the fringe of a disputed “overvalued” cliff. Who’s going to present?

Huge Image: DraftKings Has Entered the Retracement Pink Zone

CHART 1. WEEKLY CHART OF DRAFTKINGS. DraftKings SCTR studying has been “pedal to the metallic” on the upside for a 12 months, regardless of a number of dips. It makes you wish to test its relative efficiency towards the broader market, sector, and trade friends. Nonetheless, that Fib retracement seems tempting for bears trying to pounce. Chart supply: StockCharts.com. For academic functions.

With a StockCharts Technical Rank (SCTR) rating of 97.5, DKNG’s technical readings look exceedingly bullish to the purpose of overheating. However is it a lure?

Drawing a long-term Fibonacci retracement from its highest excessive of $74.38 in March 2021 to its backside of $9.77 in Might 2022, DKNG’s latest surge has entered the area above the 50% retracement. 

A 3-year Fib retracement might appear to be an extended interval, however bears who bought in close to the highest and bulls who bought in towards the underside would possibly see this as a chance to shut positions with a revenue. This leaves these nonetheless trying to enter, both lengthy or brief, with a little bit of a conundrum.

DraftKings Inventory: An Exhausted Winner?

CHART 2. DAILY CHART OF DRAFTKINGS. DKNG has been outperforming the market, and its 2024 steerage gives a bullish glimpse into the approaching quarters. But it surely wants a breather, and for those who’re trying to purchase the dip, you’ll want to set a worth alert to arrange your self for it.

As talked about, DraftKings popped up on an Overbought with a Declining RSI scan. This means bearish divergence: costs have risen into overbought territory whereas the RSI studying is falling.

In the event you have a look at the panels above the worth chart, the relative power index (RSI) is paired with a Cash Circulation Index (MFI) indicator—a volume-weighted RSI—to substantiate and present extra clearly this divergence, which is barely seen on the RSI (black dotted traces).

Now, have a look at the three worth efficiency indicators within the panels under the worth chart. This illustrates the extent to which DraftKings has outperformed the S&P 500 (87.85%), the Client Discretionary sector (86.35%), and the Playing trade (104.71%).

DraftKings’ efficiency is that of a winner. And on Friday, a day after reporting its This autumn earnings, it logged in a 52-week excessive earlier than backing off from its session excessive. Is its momentum exhausted? The reply is that it could possibly proceed operating regardless of its overbought readings.

Ultimately, although, all rallies want a breather. Bears will search for a reversal on robust momentum. Relying on whether or not they’re shorting for the near-term or long-term, their technical worth goal might be any of a number of swing lows (all potential help ranges) on the best way down.

As for bulls trying to purchase on a pullback, you need to look forward to a pullback (which hasn’t but occurred on the time of writing). The RSI and MFI can assist you gauge the depth of the pullback alongside the precise worth motion (e.g., help and resistance). And if it occurs to tug again within the close to time period, you would possibly wish to set a worth alert at $34.50, which coincides with its July excessive and November–December help ranges. 

The 50-day, 100-day, and 200-day easy transferring averages, all in full sail, can give you a positive help vary, which, for those who reference it with the Ichimoku cloud vary, would possibly make it easier to anticipate a bullish reversal. However you will need to make sure the upside bounce has sufficient momentum to be sustainable (e.g. a bullish candle backed by excessive quantity and a few follow-through).

The Backside Line

To wrap issues up, DraftKings stands at a vital juncture, flaunting robust market efficiency on the fringe of near-term burnout. Nonetheless, the corporate forecasts sturdy prospects for the 12 months to return. Buyers trying to get in are ready for the mud to settle, eyeing the right second to dive into the fray, hoping to catch the subsequent upswing.

Including Indicators to Charts

Deliver up a worth chart in SharpCharts and add within the Cash Circulation Index and different indicators from the Indicators dropdown menu.

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary state of affairs, or with out consulting a monetary skilled.