Uber Technologies Survives A Sloppy Bottom in Its Stock Price

After two bullish engulfing patterns, Uber Technologies, Inc (UBER) finally carved out a more lasting, even if sloppy, bottom. A business update at the Goldman Sachs Communacopia Conference provided the catalyst. CEO Dara Khosrowshahi delivered good news across several operational metrics. He also reported that UBER may get to profitability in the current quarter. After the dust settled on trading, UBER closed with an 11.5% gain and a breakout above its 50-day moving average (DMA) (the red line below).

On the heels of a bullish business update, Uber Technologies, Inc. (UBER) lifted out of 10-month lows and into a 5-week high.

While today’s surge simply returned UBER to its post-earnings high, the move still provides a good lesson in trading technical patterns that signal potential bottoms. I used UBER’s trading as an example of a bottoming pattern in “How to Trade A Bullish Engulfing Pattern“. The stock generated two bullish engulfing patterns that fueled minimal follow-through and produced a sloppy bottom for the stock. The rally off of the last bullish engulfing pattern ran into stiff resistance at the 20DMA (the dotted line above) and sellers challenged the bottom twice. The last challenge marginally breached the lows. Similar to the initial break of the first bullish engulfing pattern, I did not take the stop loss because the breach was small enough to look unconvincing. My patience with this sloppy bottom paid off with the 11.5% surge. I (re)learned a key lesson in suppressing aggressive reactions to small trading moves.

The Trade

I used the rally to sell a weekly call short against my position since UBER gapped up well above its upper Bollinger Band (BB) (the top black line in the chart above). With the stock in such a stretched position, I anticipate some kind of pullback toward 50DMA support before UBER can rally much further. I chose the $44 strike for the short call given the alignment with the post-earnings high from August. Surprisingly, UBER buyers were able to push the stock right past $44 before the close. Fortunately, I am perfectly happy letting the stock get called away.

If my stock gets called away Friday, I will not chase price higher to reestablish a position. Instead, I would wait for some kind of pullback that “cools” the stock a bit. A successful retest of 50DMA support would firm up and confirm support. Absent such a convenient test, a pattern like a “calm after the storm” – where the price range neatly contracts shortly after a surge – could provide a lower risk entry point. Either way, UBER is out of bearish country even as it still trades under its $45 IPO price and faces a stiff challenge with 200DMA resistance (the blue line in the chart above). Note that UBER trades above its $42 price at the open of the first trading day.

Be careful out there!

Full disclosure: long UBER covered call position

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