One of this year's hottest initial public offerings, Roku, Inc. (ROKU), is off to a great start. Shares traded up from a $14 IPO price ($16 opening price) on Thursday and went all the way up to $30 on Friday, before pulling back to $23.50 to close out Monday's session.

Looking ahead to the next few days, the best tools to figure out where the stock is headed next are support levels from the first day of trading, resistance levels from Friday’s highs, and more overall, Fibonacci retracements.

First, looking at support levels, the stock closed around $23.50 on Thursday. Being able to hold this level is important for shares, as one would like to see them maintain their first day’s level of trading (Thursday’s close level). Breaking below the first day’s close is a sign of distribution and might lead to further selling pressure, because those that bought near the close at the end of the first day are now at a loss. While this is not always the case, when dealing with a stock that has only been trading for a few days, it is something to highly consider.  

Fibonacci retracements are used to map out support and resistance levels. One can draw them from the low end of a range to a high end. There are three main levels: the 38.2% retracement, 50% retracement and the 61.2% retracement. Looking at the Fibonacci retracement levels, there is support at the $20.75 level and the $22.50 level. The former represents a 61.2% retracement of the move from Thursday's open to Friday's open, and the latter represents a 50% retracement. Falling below both retracement levels will likely lead to a move back down to $16 (Thursday's open), because all support levels would have been broken. But if these levels hold, and the $23.50 level holds, then it is more likely that the stock heads back to resistance points.


Now looking at resistance points on Roku's chart, there's a 38.2% retracement level at $24, which the stock broke Monday and closed below. A move back above this level could lead to a test of $27 to fill the gap from yesterday’s trading and test Friday’s close. Next, a move up to $30 could be in order. It looks like the $22.50 to $24 level is a battleground for Roku. Above this level, and it is probably safer to be long, whereas below, it seems that the enthusiasm for the stock might be short-lived, and shares could be heading back down to Thursday’s open. 

The Bottom Line

After the initial enthusiasm for Roku, shares have pulled back to main Fibonacci support levels around $22.50 to $24 a share. How the stock behaves at this level will crucial for determining whether the initial doubling of shares was a fluke, or if the strength in shares is to remain for a while.

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