In a sharp turnabout, buyers came screaming back into stocks Wednesday. Food stocks like Shake Shack Inc (NYSE:SHAK) and GrubHub Inc (NYSE:GRUB) were on the menu and bulls were only too happy to gobble them up. While SHAK is looking mighty tasty in its own right, it’s GRUB stock that commands our attention today.
The online and mobile food-ordering company has all the makings of what could be a runner.
GRUB Stock Charts
Consider first the weekly chart. Ever since GrubHub eclipsed the fat-bellied resistance level at $47.50, it has been on a tear. The uptrend boasts increasing momentum in spades. Just look at the follow-through during the last two breakouts.
RSI fans will note the indicator is confirming GRUB’s torrid pace. The series of higher swing highs in the RSI validate the trend’s momentum. It’s also a bullish omen that we’ve seen overbought readings persist for so much of the past year.
The last quarter of sideways movement has allowed GRUB to work through some of the overbought pressures that cropped up after its last six-week moonshot. And with the 20-week moving average now caught up, the time the next advance is nigh.
Turning to the daily chart reveals what really got me excited about spotlighting Grubhub today. Wednesday’s high-volume 6.3% rip formed an impressive breakout candle. Before yesterday, the stock had tried and failed half a dozen times to breach the $105 ceiling. This time, it appears, was different. Buyers finally held their ground and powered through any supply that came onto the market.
And with that, GRUB stock is now poised to revisit (and probably surpass) its previous peak of $112.41.
Take a Bite of GrubHub
Call options seem richly priced in GRUB right now, so I’d rather purchase a spread to mitigate the cost. Buy the July $105 call and sell the July $120 call for a total net debit of $5.65. This bull call spread could capture a profit as high as $9.35 if the stock can rally above $120 by expiration.
The risk is limited to the initial investment and will be lost if GRUB sits below $110 and you ride to expiration.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.