It's time to sell this overly loved video game stock, says Carter Worth

Roblox (RBLX) shares have surged over 100% since April 7 and 240% since May 9, prompting concerns about the stock being overbought. CNBC Pro contributors advise those long on the stock to reduce exposure, while those not involved should stay away, and short sellers should sell, citing an increasingly steep, uncorrected advance far above its 150-day moving average.

Analysis

Technical analysis of Roblox (RBLX) indicates the stock is in a significantly overbought condition following a rapid price appreciation of over 100% since its April 7 low and over 240% since its May 9 low. The primary concern stems from the stock's price action, which is described as an "increasingly steep, uncorrected advance" that has pushed it far above its 150-day moving average. This divergence from key technical smoothing mechanisms suggests the rally may be unsustainable and vulnerable to a sharp reversal. The bearish thesis presented is based purely on these technical indicators and market sentiment, without reference to underlying company fundamentals or specific catalysts, framing the current situation as a function of excessive momentum rather than a re-evaluation of the company's intrinsic value.

Key Decisions for Investors

• Investors with long positions should consider trimming their exposure or employing hedging strategies like selling covered calls to realize gains and mitigate downside risk from a potential technical correction.
• Given the stock's significant price extension above its 150-day moving average and the characterization as overbought, initiating new long positions at current levels carries a high risk of a near-term pullback.
• The presented technical setup suggests a potential opportunity for bearish investors, who might consider short positions based on the expectation of a reversion to the mean, while acknowledging the high volatility inherent in the stock.