Robinhood-HOOD
Robinhood stock was slammed post-market following Q2 earnings. Despite beating on revenue, HOOD warned of tricky times ahead and declining user growth. The stock quickly lost the $50.00 mark, sliding as low as $45.45, more than 12% below its intra-day high. Not to mention HOOD is now down 46.50% from the August 4th, $84.98 top.
After the bell, last night, the second-quarter trading update of Robinhood Markets Inc (NASDAQ: HOOD) revealed a few surprising developments. Notably, payment for order flow was materially lower in the three months, decreasing by 34% compared to Q1. However, total revenues of $565m were ahead of analysts forecasts of $559.50m. Furthermore, the $502m loss came towards the lower end of the forecast of $487m to $537m.
However, the retail broker warned that they expect “seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than in the prior quarter.” The Robinhood stock price came under further pressure when the company disclosed it would incur more than $3 billion in costs over the next three years due to its stock-based compensation scheme. Surprisingly, crypto trading surged to become the highest-earning segment of the business, eclipsing equities, which leaves Robinhood reliant on the unpredictable asset class and pits the firm against more specialised crypto exchanges.
Looking at the 60-minute chart, we see the Robinhood stock price has been trending lower in a narrowing wedge for the last two weeks. Yesterday, ahead of the data release, HOOD tested the top end of the descending trend channel around $52.00 and was close to breaking out. However, following the trading update, the bottom end of the formation is now in danger of giving way.
Considering the stock has been trading for just three weeks, there is little in the way of historical price support, and therefore, the trend line at $44.75 is clearly a significant support level. This could leave HOOD vulnerable to a steep decline should the price open below $44.75. A logical downside target is the first day high of $40.05, and following that, the same day’s low at $33.38.
The stock is likely to trade with a negative bias if it remains in or below the downward sloping channel. Therefore, the outlook is lower unless the price clears the descending trend line at $51.33. This would invalidate the bearish call and suggest an extension to $60.00 is possible.
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