Robinhood stock price has formed a risky chart pattern, pointing to more downside after its financial results later today, Nov. 4. HOOD was trading at $147, a few points from the year-to-date high of $154.35.
It remains about 400% above its lowest level this year, bringing its market capitalization to over $130 billion. This article explains why the HOOD stock price may crash after its earnings.
Robinhood Stock Price Technical Analysis Points to a Dive
The daily timeframe chart shows that the HOOD stock price peaked at $154.35 in October and then retreated to a low of $120, its lowest level on October 22nd.
The stock has formed a double-top pattern, which is characterized by two peaks and a neckline, which, in this case, is at $120.
Meanwhile, the stock remains well above the 100-day Exponential Moving Average, currently at $113. Therefore, there is a likelihood that the stock will go through a mean reversion, where an asset moves back to the historical averages.
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Bitcoin price has also formed a bearish divergence pattern as the Percentage Price Oscillator (PPO) and the Relative Strength Index (RSI) have continued moving downwards in the past few months, as the stock has remained in an uptrend.
Therefore, a combination of a double-top, bearish divergence, and mean reversion explains why the stock may have a bearish breakdown after publishing its third-quarter results on Tuesday.
Crypto Crash and Valuation Concerns Remain
Robinhood stock price has other potential risks that may impact its performance in the near term. One of these risks is that the crypto market crash is underway, with Bitcoin and most altcoins being in a bear market.
The turbulence in the crypto market is important for Robinhood because the company has invested huge sums of money on the industry, including its recent buyout of Bitstamp, one of the biggest players in the industry.
In most cases, companies in the crypto market experience low volume and volatility when tokens are in a freefall and boom when things are going on well. For example, its crypto revenue in the second quarter jumped by 98%.
The other risk that may impact the HOOD stock price after earnings is that the company has become highly expensive during the ongoing bull market.
It has a forward price-to-earnings ratio of 82, much higher than the S&P 500 Index’s 23. Its forward price-to-earnings-to-growth (PEG) ratio has jumped 3.35, much higher than the sector median of 1.12.
Still, there is always a risk of going against a momentum company like Robinhood despite its major risks. A good example of this is Palantir, one of the most overvalued companies in Wall Street, whose stock jumped after publishing its results on Monday.
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