After a long, quiet period, this year’s IPO market is abuzz. Two in particular — Lyft (NASDAQ:) and Uber (NYSE:) — captured most of the headlines on Wall Street. That is, until Beyond Meat (NASDAQ:) recently stole the show.
While the BYND and Zoom Video (NASDAQ:) IPO processes produced successes, we learned that not all IPOs are created equal. Lyft stumbled right out of the gate. There was enough criticism to go around as to who did what and when to ruin the LYFT launch. What made matters worse for it, is that Uber came to market soon thereafter. It undoubtedly stole bids away from Lyft stock so it stood no chance of finding footing for weeks.
Early in May I wrote an article about not giving up on Lyft and to stay long it. The idea paid, as the stock is up 16% since then. Today’s note is to point out that even from here, there still is a bullish technical set up which could be the next opportunity for the Lyft bulls.
LYFT Stock By the Numbers
I am a fundamental investor, so I have to look at the boring stuff like valuation and the bullish versus the bearish thesis. So first let’s look at the fundamentals, which aren’t that great on paper. Lyft still loses a ton of money and they claim that they’re going to grow to the moon. The path to profitability is very murky. Many experts even contend that they will never be profitable.
I agree that the stock is definitely not cheap, since it sells at 7 times sales. But it’s hard to gauge a growth stock like this so early in the process — especially one that’s in a brand-new disrupting industry. So there are no experts in the field. Amazon (NASDAQ:) and Netflix (NASDAQ:) encountered the same bearish arguments as they blazed their new industry trails.
So for those who like LYFT stock, buy it for the long term and ignore this short-term action and the bearish talking heads.
But I almost never make a trade without looking at the technicals too. So I ignore the fundamentals for this purpose of today’s write-up because the opportunity is technical and it is in the charts. So I consider this a stand-alone tactical trade not an investment.
The recent price action shows higher lows knocking against a roof. This tells me that the buyers have momentum for almost a month. If they are able to break through the roof, they can overshoot up and test $70 per share. There will be resistance along the way at $65 and $67 per share, so it won’t be easy.
For those who like to study charts, the pattern looks like an inverse-head-and-shoulder where the neckline is around $63.30 per share. Ideally I wait for the breach of the neckline before I chase the stock up. So it’s a case of buy high and sell higher.
How to Trade It
Some traders like to anticipate the move and start early, so they buy right away and hope for the rally to unfold. For that, I would definitely use tight stops, and where to place them depends on personal risk tolerance. I see significant levels at $58.70, $56.25 and $54 per share.
The good news is that when a stock price range narrows from a wide band into a virtual point, it gathers energy. This almost always resolves itself in a big move where the direction is undetermined. In this case and since the bulls are making higher lows for weeks, unless there’s specific bad news the expectation is that they will be able to breach it to rally even further.
It is important to note that there is risk from outside factors to consider. We are still in the throes of an economic war between the United States and China, so we are apt to getting surprise geopolitical tape bombs. We cannot plan for these so it is best to set in adhere to the stop-loss levels below.
Even as I share this upside opportunity here for Lyft, I have to note that I prefer holding Uber stock for the very long term. It’s just too big a company to ignore and it reminds me of Facebook (NASDAQ:) and its infancy.
Regardless, today’s write-up is to share the potential of buying Lyft stock for a tactical trade that could deliver a $10 rally.
Nicolas Chahine is the managing director of . As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room free here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.