Robinhood stock price has formed a risky chart pattern, pointing to more downside after its financial results later today, November 4. HOOD was trading at $147, a few points below 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 report.
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 on October 22nd. The stock has formed a double-top pattern, characterized by two peaks and a neckline 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 undergo mean reversion, in which an asset moves back toward its historical averages.
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Robinhood share price has also formed a bearish divergence pattern, as the Percentage Price Oscillator (PPO) and the Relative Strength Index (RSI) have continued to decline over the past few months, while the stock has remained in an uptrend.
Therefore, a combination of a double top, bearish divergence, and mean reversion suggests the stock may break down 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 significant sums in the industry, including its recent acquisition of Bitstamp, one of the industry’s biggest players.
In most cases, companies in the crypto market experience low volume and volatility when tokens are in a freefall, and high volume and volatility when things are going well. For example, its crypto revenue in the second quarter jumped by 98%.
Another risk that may affect 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, well above the S&P 500 Index’s 23. Its forward price-to-earnings-to-growth (PEG) ratio has jumped to 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 on Wall Street, whose stock plunged after publishing its results on Monday.
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