DoorDash (DASH) Opening Print Could Offer Profitable Trades

DoorDash Inc. (DASH) opened for trading on the NYSE at 12:43 p.m. on Wednesday, Dec. 9, coming public at $182. The initial public offering (IPO) was priced at $102, but strong demand induced lead underwriters The Goldman Sachs Group, Inc. (GS) and JPMorgan Chase & Co. (JPM) to offer a higher price. The close at $189.51 translates into a market valuation of $60.2 billion, or about twice as high as rival Uber Technologies, Inc. (UBER) on a revenue basis.

Key Takeaways

  • DoorDash came public at $182 on Wednesday and closed at $189.51.
  • The IPO opening print can be used to define support or resistance, depending on short-term momentum.
  • This magnetic price level can come into play months or years after a company comes public.

The company booked $1.9 billion in revenue in the first nine months of 2020, more than triple the $587 million earned in the same period in 2019. It posted a net loss of $149 million, much lower than last year’s $533 million loss, highlighting rapid growth that could generate profitability ahead of Uber, which is forecasting that blessed event at the end of 2021. Japan's Softbank Group Corp. (SFTBY) holds the greatest number of shares after the IPO, with a 20% stake.

Public traders are mesmerized by highly anticipated IPOs, seeking shares that are hard to obtain because they're set aside for employees and insiders. The company coming public is often over-valued by the time it hits the stock exchange, triggering losses for market players who lack sophisticated risk-management skills. In addition, the first publicly traded session is often the worst time to take the plunge because there's little technical data to rely upon.

A classic solution is to draw a line across the IPO opening print and watch short-term price action compared to this reference point. It doesn't always work because some equities just plunge or take off for the heavens, and they don't trade near the print for months. However, it's common for this level to generate support and resistance levels that can be used for profitable entry and exit. Twitter, Inc. (TWTR) comes to mind in this regard, crisscrossing November 2013's print at $45.10 repeatedly in the past seven years.

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment, as it typically includes share premiums for current private investors. Meanwhile, it also allows public investors to participate in the offering.

DoorDash 1-Minute Chart (2020)

One-minute chart showing the share price performance of DoorDash Inc. (DASH)

Start with a one-minute chart and expand into a daily chart in the days and weeks after a company comes public. DoorDash stock opened at $182 on Wednesday even though many charting systems show $163.80, which actually marks the intraday low. Place a horizontal line across the IPO opening print and add additional lines at the high and low after the close. Then expand highs and lows as needed, looking for the print to act as support, resistance, or a pivot point.

You can see how the opening print came into play during the first session, generating resistance for more than two hours after a 1:30 p.m. breakdown. The last hour breakout is getting tested in Thursday's pre-market, with price settling near the print, theoretically offering support into the opening bell. Now, expand this strategy and thought process over the next days, weeks, and even months, eventually working with daily price bars.

A pivot point is a technical analysis indicator or calculation used to determine the overall trend of the market over different time frames.

The Bottom Line

DoorDash stock came public at $182 on Wednesday, forcing traders and investors to apply a few technical tricks if they want to get on board before price action generates larger-scale buy or sell signals.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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