This week has not been kind for Uber Technology (NYSE:UBER). Nor have the last three months, for that matter. But while the previous quarter of bearishness can be blamed on the economy reopening trade falling out of favor, this week’s decline cannot. And that should be troubling to those interested in buying UBER stock.
With one trading session left in the week, UBER finds itself down nearly 6%. Meanwhile, many other stocks linked to the reopening trade have been climbing. Perhaps the most telling is Lyft (NASDAQ:LYFT), which finds its share price up more than 3% this week.
The conclusion is simple – Uber’s problem is idiosyncratic.
Half of this week’s losses came on Thursday after news hit that SoftBank was liquidating approximately one-third of its position in Uber.
As reported by CNBC, the Japanese conglomerate company reduced their stake by 45 million shares to help compensate for losses suffered by their investment in Chinese ride-hailing giant Didi Global (NYSE:DIDI). Didi got caught up in the stock rout driven by fears that China will continue to crackdown on U.S.-listed Chinese companies.
Softbank lost some $4 billion on its stake in Didi and apparently needed to liquidate other holdings to cover the losses. I don’t have an opinion on the long-term ramifications for Uber, but unloading 45 million shares adds some significant supply into the marketplace in the short run.
Uber Stock Chart
While Softbank certainty didn’t help Uber’s rally efforts, it’s not like the stock was on healthy footing before the news. Sellers have been in complete control of the price chart for months.
So let’s take a quick look at the weekly chart to grasp the bigger picture.
The price trend has been lower since the week of May 5 cracked support and plunged UBER to $45 a share. We’ve since had a failed bounce that pulled prices below the 50-week moving average.
And with this week’s whack, we’re now testing major support at $44. Unfortunately, the volume patterns don’t offer many signs of hope either. Distribution bars pepper the landscape with the latest striking this week.
The next major support zone is $39, so we could see a swift decline if $44 gives way. Moving to the daily time frame provides more detail, but none of it is bullish. Prices are pushing lower below a 200-day, 50-day, and 20-day moving average. And we continue to see lower pivot lows and highs, which confirms supply is increasing as demand wanes.
The looming earnings report on Aug. 4 might be buyers’ only hope here. But good luck guessing ahead of time if the numbers will be good enough to justify an overnight pop. The last few quarterly reports have seen mixed reactions from the stock, so I see no reason to bet big into the event.
Smart traders really only have two options. First, avoid UBER stock for now and revisit it after earnings if a trade opportunity presents itself. Second, bet on the downtrend continuing through the numbers and build a bearish trade now. There’s simply too much working against bullish plays right now.
Bet with Bears
Buying put vertical spreads presents a favorable risk-reward for our earnings play.
The Trade: Buy the September $45/$40 put spread for $1.95.
The max loss is $1.95 and will be forfeit if Uber stock sits above $45 at expiration. The max gain is $3.05 and is yours if prices fall below $40 by expiration. By risking $1.95 to make $3.05, you have the potential for a 156% return on investment.
On the date of publication, Tyler Craig was LONG SNAP. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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