Rocket Lab Investors Have a Choice to Make. Here's Mine.
It's not you, it's technical.
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Just a heads up here.
Long-time "Stocks Under $10" name and core Sarge-folio holding Rocket Lab (RKLB) is taking another hit Monday. There has not been significant news of late, but the stock, which has had a tremendous run, is now 23.1% off of its all-time high of just two weeks ago.
Rocket Lab, which is not yet profitable, is set to report earnings towards the end of this month. For its fourth quarter, Wall Street is looking for an adjusted loss per share of $0.05 on revenue of $178.2 million. That would be a slight improvement from the year-ago EPS comp of -$0.06, but on annual revenue growth of about 34.6%.
The Problem Right Now
The problem, fundamentally, is valuation, for a not-yet-profitable company. That doesn't always matter as much as it used to or as much as it should. Growth is more highly valued in the 2020's than anything else and Rocket Lab still sports impressive revenue growth.
The real problem, currently, is technical. I touched on this about 10 days ago when I warned that RKLB was starting to develop what could be a head-and-shoulders pattern of bearish reversal.
In the chart above, readers will see the pattern that I have been discussing. Interestingly, and sort of discouraging, after a four-day battle at the 21-day simple moving average (SMA), the swing crowd chose to stop defending the stock and allowed that line of support to fail. This allows for the further development of our potentially bearish pattern.
Relative Strength has moved from being technically overbought to dropping below the neutral line in 10 days' time, while the daily moving average convergence divergence (MACD) has drastically changed its posture. The histogram of the 9-day exponential moving average (EMA) has dropped well below zero while the 12-day EMA has dropped well below the 26-day EMA. These are all bearish signals.
So, do I buy this dip? Not if I do not need to.
Investors have a choice. Take profits and run? I don't want to do that, and I prefer to take partials at price targets.
I think I am going to wait until the shares either retake that 21-day EMA on upside momentum or add to my long on a test of the 50-day SMA, which is currently down around $68. Regular readers will recall that this has always been my "add" level.
There is no reason to panic. My $110 target may be a little unrealistic at this point, at least for the short-to medium-term, but there is no technical reason at this point to revise that number.
Nervous investors could purchase $70 February 27 (after earnings) puts for about $5.00 to both protect profits and put minds at ease, if need be.
At the time of publication, Guilfoyle was long RKLB equity.
