GrubHub, Inc. (GRUB) stock roared back from a 17-point deficit after the company missed fourth quarter earnings and revenue expectations on Thursday morning, ending the session less than two points under Wednesday's closing print. The bullish turnaround could signal a tradable bottom within a three-month basing pattern, setting the stage for a breakout that marks the end of an 83-point 55% decline from the all-time high at $149.35 posted in September 2018.
The company has grown by leaps and bounds since coming public in 2014, pioneering a historic expansion of restaurant delivery beyond traditional pizza and Chinese food categories. However, competition has grown at an equal pace, with Amazon.com, Inc. (AMZN), Square, Inc.'s (SQ) Caviar, Uber, Door Dash and Postmates competing for customers. GrubHub has risen to the challenge, noting that delivery opportunities have expanded exponentially during this period as well.
GRUB Long-Term Chart (2014 – 2019)
The company's initial public offering (IPO) opened at $40.00 in April 2014 and eased into an 18-point trading range, with support at $30 and resistance at $48. It broke down in the fourth quarter of 2015, dropping into the upper teens before posting an all-time low at $17.77 in January 2016. The stock climbed back into the broken range seven months later and stalled at range resistance in October 2016.
A consolidation into August 2017 completed a three-year inverse head and shoulders pattern, ahead of a powerful breakout that gathered strong momentum into the September 2018 all-time high. Aggressive sellers then took control, generating a steep decline that ended at the 200-week exponential moving average (EMA) in the mid-$50s in December. Price action in the past three months has carved a relatively narrow basing pattern, with resistance at the broken October low near $83.
The weekly stochastics oscillator entered a buy cycle in December 2018 and reached the overbought level just one month later. It started to turn south at Thursday's opening bell, but the strong close aborted a bearish crossover, at least for now. The monthly oscillator reached the most extreme oversold reading since 2015 in December and has now crossed higher but not exited the oversold zone, which is required to establish a new buy cycle.
GRUB Short-Term Chart (2017 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator hit an all-time high in March 2018 and pulled back, posting a lower high when price hit a higher high in September. This bearish divergence resolved with October's high-volume breakdown through the March peak and 200-day EMA. The big hole can now be identified as a continuation gap, unfolding around the 50% level of a strong downtrend. OBV has now dropped to a 16-month low due to yesterday's big red bar.
The November breakdown through the October low now marks the top of a basing pattern (red line), with Thursday's reversal closing within two points of that resistance level. The stock is trading above $84 this morning, signaling a potential breakout, but prospective buyers need to choose their holding periods wisely because the uptick will run into a buzzsaw of resistance in the mid-$90s.
The .382 sell-off retracement has aligned with the declining 200-day EMA and round-number resistance at $100, while the failed breakout and .50 retracement have aligned at the gap fill above $110. This should limit initial upside into the mid-$90s because the 200-day EMA marks a tough barrier that won't be remounted without major firepower. In addition, the first bounce into a continuation gap signals a high-probability short sale that could yield a rapid decline into the $80s.
Even so, the rally off November support may signal the end of the five-month correction, allowing a long-term recovery process to kick into gear. Patience will be required to profit from this price structure if it plays out, with two-sided action that generates whipsaws and shakeouts. Meanwhile, a rally into the $120s is now needed to confirm a bullish change in character, opening the door to the 2018 high.
The Bottom Line
GrubHub stock may have bottomed out after Thursday's big reversal, but a retracement back to the 2018 high could take many months of buying power.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.