Can DraftKings Overcome Key Technical Levels?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 NASDAQ: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 SP: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.
