Preparing to Panic Over Rocket Lab

Regular readers may have noticed that since coming back from my mini-hiatus, I have been trying to catch readers up with where my thoughts are on the "Sarge" names. 

On Monday, we tackled DeFi Technologies (DEFT) and Palantir Technologies (PLTR) . On Tuesday, we took on SoFi Technologies (SOFI) . On Wednesday morning, we updated our view on CrowdStrike  (CRWD)  post-earnings. 

Just as an FYI, I have not written a piece, but I have been working my way out of Microsoft (MSFT)  on Wednesday morning after that news broke. I expect to be flat that name by the time you read this. 

All that said, it's time to get updated on one of our all-time great "Stocks Under $10" and "Sargefolio" names, Rocket Lab (RKLB) .

Looking Back

On November 10, also known as the Marine Corps Birthday, Rocket Lab reported the firm's third quarter financial results. The next morning, on November 11, also known as Veterans Day, I wrote to you expressing my thoughts on the stock. 

For the period, the firm posted a GAAP EPS of -$0.03 on revenue of $155.08 million. The top-line number beat Wall Street while boasting year-over-year growth of 48%. The bottom-line print crushed the consensus, which was for a loss of ten cents per share. This data was good for a second consecutive quarter of accelerating sales growth. 

As far as current quarter guidance was concerned, Rocket Lab projected revenue of $170 million to $180 million, which took the mid-point of the range above the $172 million that Wall Street was looking for. That midpoint would be good for year-over-year growth of more than 32%. The firm also sees an adjusted gross margin of 43% to 45% and adjusted EBITDA of -$29 million to -$23 million. 

In response to the better-than-expected results and strong guidance, I reset my target price at $70, which was down from an admittedly over-aggressive $85. As it turned out, I wrote to you again six days later, acknowledging what I saw as a potential incomplete head-and-shoulders pattern of bearish reversal and I apologized for the $70 target as I no longer saw it as realistic. 

I told readers then that I would come back when I saw further development and possibly set a new target.

The Chart​

​Readers will see that the head-and-shoulders pattern that I had seen coming in mid-November is still incomplete. Should a right-side shoulder develop, the downside pivot would stand ​at the 200-day SMA, currently close to $37. A loss of that line would trigger a sell-off across professional portfolio managers that I would participate in.

For now, the upside pivot would be the 21-day EMA. Taking that level would engage the swing crowd, which is important to this stock. The target, should that happen, would move to $51, but realistically, it would be the 50-day SMA that will matter should something like that take place. If you are reading between the lines and you think I am less confident in his name than I was, you're right. This stock is a classic example of why we take something off every time one of our target prices is taken and held.

As for the indicators, there is hope. Relative strength is weak, but out of technically oversold territory. Additionally, the daily MACD is suddenly looking less awful. The histogram of the nine-day EMA is back in positive territory, which is a short-term bullish signal. On top of that, though both of these lines remain well below the zero-bound (which is bearish), the 12-day EMA has moved above the 26-day EMA (which is positive).

So, I am not running for the hills, but I am ready to. I proceed with a heightened level of caution as I watch that potential right shoulder of the underdeveloped head-and-shoulders pattern. That really is the key for me right now.

At the time of publication, Guilfoyle was long PLTR, SOFI and RKLB equity.