Rocket Lab stock has gone parabolic: why the SpaceX IPO may trigger a crash

Rocket Lab NASDAQ:RKLB stock price has gone parabolic this year and is now trading at its all-time high. It soared for four consecutive weeks, meaning it has now jumped by over 4,000% from its pandemic low of $3.43. This rally may meet its match in the coming days as the stock has become highly overbought.

Rocket Lab stock: technicals are sending an alarm

Technicals suggest that Rocket Lab stock price may be on the cusp of a big reversal in the coming weeks. The weekly chart shows that the stock has gone vertical since late April and is now at the highest point on record.

The main challenge, however, is that the stock has become highly overbought, with the Relative Strength Index (RSI) soaring to 80. Similarly, the two lines of the Stochastic Oscillator have moved above 90. 

While a highly overbought asset may continue rising for a while, it is common for them to reverse as investors start booking profits. 

The stock has also diverged further from its historical moving averages. In this case, while the stock is trading at $143, its 50-week moving average stands at $68. Its 100-day moving average is at $50. 

This means that it may go through a mean reversion process in the near term. If this situation plays out, the stock may crash to the key support level at $100, its highest point on January 12 this year. 

Rocket Lab stock chart | Source: TradingView

SpaceX IPO may be the bearish catalyst

There are two main reasons why the RKLB stock price has surged this year. The most notable one is the upcoming SpaceX IPO, which has pushed most companies in the industry higher. For example, top ETFs in the industry like Tema Space Innovators ETF (NYSE: NASA) and the Procure Space ETF (NASDAQ: UFO) have jumped to their record highs.

The upcoming SpaceX IPO will value the company at over $1.7 trillion, with traders on Polymarket expecting it to get to over $2 trillion in its first day. It will be the biggest IPO on record.

It is common for companies in the same industry to surge when there is a major event coming up. This also explains why many AI companies will likely do well ahead of the OpenAI and Anthropic IPOs later this year.

The challenge, however, is that the stocks will likely go through a sell-the-news situation once the IPO happens. This is a situation where investors buy an asset before a major event and then sell it once it happens.

Rocket Lab’s valuation concerns remain

The other main reason why the RKLB stock may crash soon is its valuation. Sure, the company recently published strong financial results, as its launches jumped to 31 during the quarter. It also achieved over 70 launches in its backlog, bringing its backlog revenue to $2.2 billion.

As a result, the company’s revenue jumped by 43% to $200 million during the quarter. And, analysts believe that its annual revenue will jump by 51% to $910 million, followed by $1.28 billion next year. 

Still, the challenge is that the company is not profitable. It made a $40 million loss, and will likely take time to turn a net profit. The company has a forward price-to-sales ratio of 48, much higher than other firms, including popular names like Nvidia and Broadcom.

The other potential risk is that the launching business is exposed to explosion issues, as we saw with Blue Origin last week. While the company has likely insured its products, a similar explosion would have a major impact on its business.