Robinhood stock flies higher on addition to S&P 500

Robinhood Markets, owner of the popular retail trading app Robinhood, will join the S&P 500 on September 22.
HOOD stock rose 14% on Monday in anticipation of its inclusion.
Robinhood stock is up 209% on a YTD basis.
S&P 500 rising wedge typically happens at the end of a bull cycle.

Clay Webster FXStreet

Robinhood Markets (HOOD) stock has blasted off 14% on Monday, owing to last week's post-market announcement that it would be added to the S&P 500 later this month.

The wider stock market is gaining moderately to start the week ahead of a number of important economic indicators. On Tuesday morning, the Nonfarm Payrolls Benchmark Revision will be released at 10:00am EST, a report that Wall Street expects to show a severe reduction in earlier US hiring levels. Then the Producer Price Index (PPI) and Consumer Price Index (CPI) will be released before the market opens on Wednesday and Thursday, respectively. The market expects the inflation figures to be low enough for the Federal Reserve (Fed) to cut interest rates on September 17, an event that should be bullish for stocks.

Robinhood Markets stock news

Robinhood will replace Caesars Entertainment (CZR) in the premier index on September 22 before the market opens. Meanwhile, AppLovin (APP) will replace MarketAxess Holdings (MKTX), while Emcor Group (EME) will replace Enphase Energy (ENPH) in the S&P 500. It's all part of the normal quarterly rebalancing, and many Robinhood investors have expected it since the stock ballooned 209% higher year to date.

With a market cap near $90 billion, Robinhood will join the index well above the lower tier of smaller weightings. As such, S&P 500 index funds and other trackers will be required to own the stock, some for the first time. This will require them to buy up shares over the subsequent weeks before September 22.

Recent bullishness surrounding Robinhood involves the platform's intention to allow sports prediction betting, an activity that should keep some customers from needing to move to a separate sports betting platform to make bets on college football and NFL games.

Sports prediction markets don't require the same level of regulation as normal sports betting, and large markets like California, Florida and Texas that control mainstream sports betting are open to business for these types of bets.

Robinhood stock forecast

Robinhood largely stuck to the 50-day Simple Moving Average (SMA) before the S&P 500 news last week. With the large rally on Monday, HOOD is bac in spitting distance of the August 12 all-time high of $117.70. The probability of a break to new highs is quite high.

Bulls will also notice that the Relative Strength Index (RSI) is showing high momentum but not yet within the overbought section of the index. This gives traders the confidence to continue holding, which is why HOOD hasn't seen a major sell-off after moving back to the prior resistance above $115.

HOOD daily stock chart

With the Tuesday through Thursday calendar offering up a number of inflation and jobs prints this week, traders should remain wary. This is because last Friday saw the S&P 500 chart resort to a "Prairie Dog" candlestick, in which the market shot to a new all-time high before selling off resolutely.

Prairie Dog patterns typically happen when a long bull run is nearing its end by demonstrating that investors are ready to take profits off the table as soon as new highs are reached. Secondly, the 4-hour chart below shows a rising wedge that also commonly precedes a reversal. Be safe out there!

SP500 index 4-hour chart

Author

Clay Webster

FXStreet

Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.

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