Fitbit Stock Tests Support After Breakout Fizzles

Fitbit, Inc. (FIT) shares fell nearly 5% on Tuesday amid concerns that its Fitbit Ionic smartwatch could face stiff competition from the newly launched, cellular-enabled Apple Watch 3 from Apple Inc. (AAPL). While the Fitbit Ionic offers superior battery life and sleep tracking functionality, the Apple Watch 3’s improved cardiac monitoring and cellular functionality could make it a worthy competitor during the upcoming holiday season given the similarity in price point.

The Fitbit Ionic may also be better positioned than Garmin Ltd.’s (GRMN​) smartwatch when competing against the Apple Watch 3, according to Stifel Nicolaus analysts, which makes the product a relatively good opportunity. Fitbit also recently announced a partnership with DexCom, Inc. (DXCM​) to provide continuous glucose monitoring (CGM) solutions through the Ionic smartwatch, which would enable CGM users to see activity and glucose levels on their wrist. (See also: Fitbit Launches Make-or-Break Smartwatch.)

From a technical standpoint, Fitbit stock experienced a breakout earlier this month to R2 resistance at $6.90 before retracing to lower trendline support. The relative strength index (RSI) appears neutral at 54.09, while the moving average convergence divergence (MACD​) may be on the verge of a bearish downturn following a significant move higher. These dynamics suggest that the current uptrend could be at risk of reversing in the near term.

Traders should watch for a breakdown from trendline support toward pivot point levels at $5.73 on the downside or a rebound from trendline support to retest R1 resistance at $6.47 or R2 resistance at $6.90. The initial demand for the Apple Watch 3 could provide an early indication of the level of competition faced ahead of the holiday season, while the Fitbit Ionic’s early sales figures will also be closely scrutinized following Apple’s recent smartwatch launch. (For more, see: New Fitbit Watch Can Reverse Bad Fortune: Analysts.)

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.

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