Uber’s Stock May Drop 15% After Forming A Bearish Technical Pattern

Uber Technologies Inc.’s (UBER) stock has risen by around 22.7% in 2020, versus an S&P 500 that has climbed by 1.6%. However, the company continues to face many challenges as it battles the coronavirus pandemic, which has led to revenue falling sharply and widening losses. It's one reason why a trader may be betting that Uber's shares fall dramatically by the end of the year, as much as 12%. Additionally, an analysis of the technical chart suggests a stock may fall by as much as 15% after forming a bearish reversal pattern known as a double top.

The company reported second-quarter revenue that was better than expected, by nearly 3%. However, that revenue fell by 29% to $2.2 billion, while reporting a loss of $0.80 per share. The company's recent struggles in ridesharing have pushed it to expand into food delivery services more aggressively with the acquisition of Postmates for $2.65 billion in stock in the middle of July.

Betting The Shares Drop

The recent struggles are likely why a trader is betting that Uber stock falls in the months ahead. The Uber December 18, $32 puts saw their open interest levels rise by about 10,000 contracts on September 22, while the December 18 $43 calls also saw their open interest levels rise by about 10,000 contracts. When digging deeper into the data, we see that the $43 calls were sold for $1.49, while the December $32 puts were bought for $2.03, creating a bearish spread where the trader spent $0.54. It is a bet that Uber's stock is below $31.50 by the expiration date in the middle of December.

Double Top

Additionally, Uber stock has been struggling recently after hitting overbought levels on its relative strength index on September 14. The stock may now also be forming what's known as a bearish double top pattern, a technical reversal pattern. The two peaks were developed with one in June and then again in early September. Should the stock fall below $34, it's likely to confirm that double top pattern resulting in the shares falling to around $30. It would be a decline of about 15% from its current price of $35.40 on September 22.

Revenue Slips

Uber's financial problems may continue well into the future.  Analysts have been reducing their revenue forecasts and estimate that the company will have revenue of $17.8 billion in the fiscal year 2021, which is down from estimates for $20.1 billion in April. Additionally, revenue is estimated at $22.9 billion in the fiscal year 2022, which is also down from April when they stood at $24.8 billion. Also, analysts now forecast the company will lose $1.68 per share in 2021 and $0.90 in 2022. That is worse then estimates for a loss of $1.31 and $0.74 per share in April.

Uber's core ridesharing business is likely to struggle over the foreseeable future due to the pandemic while presenting challenges for the stock over the short to medium term.

Michael Kramer is a financial market strategist and the portfolio manager of the Mott Capital Thematic Growth Portfolio.

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future results.