FitBit, Inc. (FIT) jumped higher in early May after reporting better-than-expected first quarter financial results, but the optimism was short-lived, and the stock is now re-testing its lows.

The company reported first-quarter revenue that fell more than 40% while it swung to a net loss of over $60 million, but the results were better than many analysts expected. Management projected second quarter revenue of $330 million to $350 million, which was lower than a $348 million consensus – and EBITDA of $(45) million to $(55) million – worse than consensus estimates of $(34.5) million for the quarter.

Despite the weak earnings, Longbow Research analysts believe that the company’s second-quarter sales are tracking above the company’s guidance and see fundamentals as improving. The company’s upcoming smartwatch could also be a positive catalyst for the stock when specifications are announced – although a disappointing product launch could put another nail in the coffin.

On a technical level, the stock has been moving consistently lower following its first quarter financial results. The stock broke through the 50-day moving average and pivot point and appears ready to test S1 support and prior lows at around $5.30. Traders should watch these levels carefully as a breakdown could spell significant potential downside, although a rebound from the key support level appears most likely given the prior two touches.

Technical indicators suggest that the stock is moving into oversold territory, with the relative strength index (RSI) falling to 40.0. The moving average convergence-divergence (MACD) has started to moderate but remains predominantly in bearish territory.

FitBit has seen its stock move significantly lower following a modest Q1 bump, but the stock could be entering oversold territory as it approaches key support levels. Combined with improving fundamentals, the stock could see a surprise to the upside over the coming days and weeks unless it breaks below key support levels.

Chart courtesy of StockCharts.com.

Disclosure: The author holds FitBit shares through passively-managed index funds.

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