Draftkings, Inc (NASDAQ:DKNG) hit near to the 52-week low of $13.06 again on Friday but began to bounce up from the level at 10 a.m. when the S&P 500 began to make a reversal from its low-of-day price.
DraftKings’ reaction to the level, when paired with similar price action on April 28, has set the stock into a possible bullish double bottom pattern on the daily chart, which indicates a reversal could be in the cards.
DraftKings reported better than expected first-quarter earnings, with revenues of $417 million, which beat the consensus estimate of $414.4 million. The online-gaming and sports-betting company also raised its guidance and expects full-year revenue to reach between $1.925 billion to $2.025 billion, versus the previous $1.85 billion to $2 billion range.
The Pattern: A double bottom pattern is a reversal indicator that shows a stock has dropped to a key support level, rebounded, back tested the level as support and is likely to rebound again. It is possible the stock may retest the level as support again creating a triple bottom or even quadruple bottom pattern.
The formation is always identified after a security has dropped in price and is at the bottom of a downtrend whereas a bearish double top pattern is always found in an uptrend. A spike in volume confirms the double bottom pattern was recognized and subsequent increasing volume may indicate the stock will reverse into an uptrend.
- Aggressive bullish traders may choose to take a position when the stock’s volume spikes after the second retest of the support level. Conservative bullish traders may wait to take a position when the stock’s share price has surpassed the level of the initial rebound (the high before the second bounce from the support level).
- Bearish traders may choose to open a short position if the stock rejects at the level of the first rebound or if the stock falls beneath the key support level it created the double bottom pattern.
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The DraftKings Chart: DraftKings has plunged more than 80% since reaching an all-time high of $74.38 on March 22, 2021. The stock has been trading in a heavy and consistent downtrend on the weekly chart since Sept. 7, 2021, when DraftKings topped out at the $64.58 mark.
- If DraftKings is able to bounce up over the $15.88 level over the coming days, it may indicate an uptrend is about to begin, although the stock will eventually need to retrace downwards to print a lower high to confirm the trend.
- DraftKings has developed bullish divergence on its chart, which suggests a bounce up to form a higher high is likely. Bullish divergence occurs when a stock’s relative strength index forms a series of higher lows while the stock’s price forms lower lows.
- DraftKings has resistance above at $14.97 and $17.21 and support below at $13.06 and $12.24.
