Lyft, Inc. (LYFT) came public in a frenzied media event last March and promptly dropped like a rock, dumping more than 40 points in less than two months. The Uber Technologies, Inc. (UBER) IPO received equal hype but a less bearish reception, losing nearly nine points from the first session's high to second session's low. Both stocks have rallied off lows in June but are still exhibiting few signs of sustained buying interest.
That could change over the summer months because short-term technicals reveal constructive price action, with both ride-sharing services carving potential breakout patterns. As a result, the better-performing Uber stock could easily hit new highs and head for the $60s during this period while its lagging rival breaks out above two-month resistance in the low $60s and fills the April gap between $75 and $78.
UBER Short-Term Chart (May – June 2019)
The company came public at $42.00 on May 10 and rallied to $44.85 in the first two hours of trading. It then turned tail, dropping in a steady decline that nearly reached the first-hour low at the closing bell. The stock gapped down on May 11 and kept on going, posting an all-time low at $36.08 in the last hour of the session. The subsequent uptick stalled in the mid-$40s a few days later, reinforcing resistance at the high print of the IPO day.
The stock then settled into a narrow trading range, with resistance at the high and support near $40, finally breaking out in June and lifting to an all-time high less than one point above the first day's high print. Trend followers got trapped in the subsequent reversal, which triggered a failed breakout and the second downturn at resistance. Uber stock has pulled back to $42 this week and could print the second higher low since May 13.
Short-term price action has drawn the outline of a potential triangle or other breakout pattern that could support much higher prices in coming weeks. The first sign that a breakout may be under way will come when the stock rallies back above the June 11 high at $43.65. It could be all hands on deck after that small buying spike, with a media-fueled feedback loop potentially lifting into the $50s on heavy volume.
LYFT Short-Term Chart (March – June 2019)
The company came public at $87.24 on March 29 and posted an all-time high at $88.60 in the opening minutes of the session. It then turned tail, closing out that day in the upper $70s, and it lost another 10 points in the following two sessions. An oversold bounce reached the April 1 gap between $75 and $78 on April 10 but failed to fill the big hole, reversing in a secondary decline that landed in the mid-$50s a few days later.
The stock broke support on May 8 and dropped to an all-time low in the mid-$40s just three sessions later. Remarkably bearish action between the IPO day and the deep low carved an Elliott five-wave decline that demands a cautious approach because impulsive selling patterns often foretell even lower prices. That won't change until a recovery wave completes a 100% retracement into the top of the second wave in the mid-$70s.
A steady uptick into early June completed a 100% retracement of the fifth wave (third selling wave), issuing a preliminary buying signal because it could mark the head of an inverse head and shoulders pattern. The stock will bounce strongly at or above the April 20 low (lower red line) if this bullish structure unfolds, printing the next leg of a breakout pattern that targets $79, right at the top of April's unfilled gap.
The Bottom Line
Shares of Uber and Lyft could trade higher in the third quarter, clearing the decks after several months of fallout from their poorly received initial public offerings.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.