Rocket Lab stock is in freefall: Is it a buy as it approaches oversold territory?

Rocket Lab's stock price has remained under intense pressure this week, falling to a key technical support level. After surging to a record high of $151 ahead of the SpaceX IPO, the stock has tumbled about 61% to around $58.60 as investors continue to take profits and reassess growth expectations. 

With the company set to report earnings on August 10, the big question is whether this sharp sell-off presents an attractive buying opportunity or signals that further downside remains. 

Rocket Lab stock has plunged amid profit-taking

RKLB stock has had a major turnaround in the past few days. A company that was recently one of the top gainers in Wall Street, has become a top laggard, with its valuation sinking from over $86 billion to $35 billion, a $51 billion wipeout.

The ongoing Rocket Lab sell-off has coincided with that of other space companies. SpaceX, the biggest name in the industry, has dropped from a post-IPO high of $225 to $112 today.

Similarly, Planet Lab stock has dived from $51.60 to $19.4, while Richard Branson’s has moved from $9 to $2.45. This sell-off is because of profit-taking since these stocks surged ahead of the SpaceX IPO. 

It is common for soaring stocks to plunge as investors start booking profits. This is exactly the same reason why companies in the memory industry like Micron, SanDisk, Western Digital, and Seagate have plunged this month.

Technically speaking, the sell-off is happening because of a concept known as Wyckoff Theory. This theory usually explains four stages that companies go through, including accumulation, markup, distribution, and markdown. 

In Rocket Lab’s case, it remained inside a narrow range, a sign of accumulation, for months. It then moved to the distribution and markdown stage slightly before the SpaceX IPO happened.

Focus shifts to its earnings report

The next important catalyst for the Rocket Lab stock will be its earnings report that comes out on August 10. This report will provide more information about its business anda deeper rationale for its Iridium buyout.

Based on its recent guidance, analysts predict that the company will release strong numbers. The average estimate is that its revenue will come in at $230 million, up by $30 million from what it made in the first quarter. It will also be a 60% surge from what it made in the same period last year.

For the year, its revenue is expected to jump by 52% to $918 million, followed by $1.27 billion next year. 

Despite its valuation concerns, Rocket Lab has some strong fundamentals as demand for rocket launches rise. Also, its business will see strong demand after it starts its Neutron project. Also, its Iridium buyout will help it become a more vertically integrated company.

RKLB stock price technical analysis

Rocket Lab stock chart | Source: TradingView

The daily chart shows that the Rocket Lab stock has been in a steep downward trend in the past few months. It tumbled from a record high of $150 to the current $58.60. This retreat has seen it move below the 50-day and 200-day moving averages. The spread between these two averages is thinning, which may lead to a death cross pattern.

The Relative Strength Index (RSI) has dropped and is nearing the oversold level of 30. Therefore, the most likely outlook is where it drops further, possibly to $50, and then bounces back over time.