Hazards still exist, but while Uber (NYSE:UBER) stock and Lyft (NASDAQ:LYFT) once looked like car wrecks, they are now showing sure signs of turning the corner. This makes them worthy of risk-adjusted buy recommendations, especially when you use the price charts of UBER and LYFT as guidance.
Let me explain.
Recent earnings reports left a lot to be desired for rideshare giants Uber and Lyft. In particular, massive and worse-than-expected losses tied in part to costly marketing campaigns or items like increasing driver concessions weren’t easy to overlook in either of the rideshare company’s reports.
Still, underneath the hood, both of the mixed quarterly earnings reports did offer UBER and LYFT stock investors other reasons to be optimistic about the future. Better-than-forecast sales growth, solid ridership numbers and declining subsidized rides to attract customers were positive items offered within Lyft’s earnings.
Similarly, in the aftermath of UBER stock’s awful-sounding loss, the company’s loyalty program, food delivery service, improving “take rates” and contribution margins were all reasons to remain positive and look forward to a better-than-forecast second half in 2019 according to analysts at Wedbush.
Now, what had once been a systemic case of bearishness for both UBER and LYFT stock at their IPO’s has now shifted into a more bullish tone, with price action worthy of a couple risk-adjusted buy recommendations for bullish investors.
Trading UBER Stock
Click to Enlarge
Some investors will undoubtedly want to wait and see what the next earnings report in August looks like before making a decision in UBER stock. But I see that as a big mistake. The price chart is telling us Wall Street is already in a forgiving mood and its putting its past worries in the rear-view mirror.
Specifically, shares of Uber are forming a second symmetrical triangle supported by a new uptrend formed over a couple weeks following the company’s “awful” earnings report in late May.
My recommendation in UBER is to buy shares if the stock can overtake $45.14. That’s fractionally above the IPO price and opening day high. This entry also only triggers if UBER stock gets past its entire open and closing price history and angular pattern resistance.
If shares are purchased using this entry, I’d suggest using the triangle’s most recent pivot low as a stop loss. Currently, that would work out to less than 4% risk. And in my view, that’s smart business off and on the price chart.
Trading LYFT Stock
Click to Enlarge
LYFT stock has taken it on the chin compared to UBER … at least from a technical perspective. But shares of Lyft are now in a confirmed uptrend, that’s a reason to view shares as even more of an attractive opportunity. In fact, with Lyft shares roughly 11% below the IPO price of $72, I see two decent risk-adjusted possibilities for long exposure in this rideshare stock.
My first recommendation in LYFT stock is to buy shares above the market at $68.15. That’s about 6% from the current price. In return for that sacrifice, the entry holds the promise of offering quick and more sure-footed gains in Lyft as shares clear the 50% retracement level and its initial low from the first week of trading as a public company.
With this entry I’d simply use the most recent pivot low within the trend to keep exposure minimized. If LYFT stock steps on the gas, I’d look to take profits at $75. This spot rests inside the initial pump and dump gap from the company’s NASDAQ debut.
Alternatively, given an overbought stochastics, if a bit of weakness develops and shares pull in toward trend support near $60, buying LYFT stock also looks attractive. I’d allow for 1.5% risk in this situation.
By some standards this suggested exit is aggressive as it respects the visual trendline rather than the uptrend’s mid-June hammer low. Also, risk of just 1.5% in a volatile name like LYFT could be viewed as playing the position to close to the vest. But ultimately, if you’re going to hail a ride in LYFT or UBER stock, having an exit strategy and sticking with it is what matters most.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
