Digital sports gaming platform
DraftKings Inc. (NASDAQ: DKNG) stock has been a rollercoaster this year still trading well above its pre-COVID February highs but still beating the benchmark
S&P 500 index (NYSEARCA: SPY). Shares more than doubled since our exclusive
MarketBeat May 26, 2020, article highlighting DraftKings as a dual narrative
pandemic play. The Company continued to grow and
entrench its brand during the pandemic with major partnerships. However, a number of insider actions have triggered a cascading sell-off in the stock to oversold levels. Both nimble traders and active investors can monitor opportunistic pullback levels to manage positions.
The Rollercoaster Ride
As major sports leagues restarted their schedules, DraftKings shares would see a surge of buying activity. The addition of NBA legend Michael Jordan enabled shares to squeeze through the $50 level as analysts jumped on the bandwagon raising ratings and targets driving shares up to an all-time high of $64.19 on Oct. 2, 2020. Optimism and sentiment were also at all-time highs further driven by the strength in competitor Penn National Gaming (NASDAQ: PENN). However, initial pullbacks turned into a miserable grinding sell-off as shares lost over (-40%) off the highs in the following weeks.
The Sell-Off
On Oct. 7, 2020, DraftKings completed a 32 million share secondary offering priced at $52, comprised of 16 million shares from certain selling shareholders and 16 million shares from the Company. Rumors identified the owner of the New England Patriots as one of the sellers. This caused shares to fall (-5%). Included in the offering documents were a small lift in revenue estimates for Q3 2020 ranging from $131 million to $133 million versus $131 consensus. Shares continued to sell-off as a 1.7 million share block was posted at $42.15 on Oct. 20, 2020. The lockup expiration further expanded potential selling of up to 90 million shares as the shakeout continued to a low of $34.90 on Oct. 30, 2020. On Oct. 15, 2020, New Jersey reported online, and retail sportsbooks revenues exploded by 68% YoY to $748.6 million for the month with 91% of sports bets placed online. DraftKings churned up $4.8 million while competitor FanDuel pulled in $25.1 million in bets.
Bounce Catalysts
Many catalysts presented themselves heading into the Nov. 3, 2020, general election. DraftKings would benefit from three states passing referendums to enable or expand sports betting. These states include Maryland, South Dakota, Louisiana and Nebraska. All four approved the initiatives. Nebraska and Colorado approved measures for land-based casinos which assumes sports betting support as well. Tennessee rolled out sports betting a few weeks earlier. The continued bounce in the SPY also lifted stocks on a macro level.
Credit Suisse
On Nov. 4, 2020, Credit Suisse raised DraftKings as a “top pick” with a $76 price target. They noted a number of catalysts which included the aforementioned state voting wins. In addition, they noted the two PGA Masters golfing events in November and April and the Match III. They noted that Match II was the highest grossing gold event ever for DraftKings. The Jan. 5, 2021, lock-up expiration should “act as a clearing event” for the stock. They also noted the under the radar growth of sports betting and iGaming opportunity in Ontario, Canada. There were
DKNG Opportunistic Pullback Levels
Using the rifle charts on the daily and weekly time frames provides a precise view of the landscape for DKNG stock. The weekly rifle chart formed a market structure high (MSH) sell trigger on the breakdown through $48.26. The weekly stochastic has been in an oscillation down with a falling 5-period moving average (MA) at $41.52 and 15-period MA at $43.11, as resistances. The daily rifle chart finally coiled up through the 20-band stochastic with a mini pup to trigger a daily market structure low (MSL) above $37.76 through the $38.06 Fibonacci (fib) level. The weekly rifle chart also formed a MSL trigger above $43.60. The weekly stochastic is still coming down but stalled out above the weekly 5-period MA while the daily stochastic continues its upward oscillation. The daily upper Bollinger Bands (BBs) sit at the $51.89 fib. The Q3 2020 earnings reaction on the O3 2020 release may provide opportunistic pullback levels at the $41.29 fib, $38.06 fib, $33.90 fib, $31.78 fib and $29.45 fib. The upside trajectory range is the $50.69 daily upper BBs up to the $62.45 sticky 2.50s range. Traders can watch competitor PENN for sympathy follow through action.
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