I Can't Believe I'm Saying This, But Uber Is A Melt-Up Trade

Summary

I noted a change in my outlook on Uber December 19th. Now is the time to strike.

This is not about teams, or loyalty. This is about seeking alpha, and the stars are aligned for it. I believe this window will be small.

This week is crucial for melt-up guidance. If we do see strong selling this week for 2019 profit taking I will go back to the charts, chastened.

If I am right and Amazon along with the chips and assorted other momentum names pick up the charge then we may have the makings of a classic melt-up, blow-off top and melt-down.

I want to leave you with one interesting data item, the VIX went up yesterday. It isn't "supposed" to do that. Please watch the VIX if it continues going up, while we have this rally mode, it may end sooner.

A Stock-Trade Is a Trade Is a Trade

This is not about religion, or politics, or your college football team, or bad guys versus good guys. We are here to trade and create alpha. If that means going long a name that I bad mouthed three ways from Sunday, and even made money on the short side, so-be-it. I am here to try to help you make money. On the way, I may try and make me some money and write about it. I will try and set up a trade this week if I can get a good position via options. No way I am going long in this name in equities. So below is why in the world I would go long on this name now.

Yes, I Warned You Away from Uber (UBER) for Weeks Before the IPO and Said it Was Dead Money

Even after the IPO, I said that iy was going to be a teenager when it was trading way higher than it is now. Here’s the thing, I STILL think that is possible. I am not saying that a long-term investor now goes out and buys this name and holds it forever. It’s a trade. If it doesn’t work in two weeks, take the loss. So this is not only a trade but a 'fast money' trade at that.

So why now?

  • Chatter, a lot of analysts are expecting a turn, and some have announced that it's their best trade for 2020 (see below)

  • Travis Kalanick sold out his whole position + billion all at once and resigned from the board so that selling pressure is over.

  • The IPO expiration selling has played itself out writ large.

  • Dara Kosrowshahi has committed to profitability by 2020. I expect some announcements selling big foreign divisions, or even Uber-Eats, and doubling down elsewhere, in the next few weeks.

  • Barring that, I expect an analyst meeting during which he announces progress on his plan for profitability.

  • The tax-loss selling window is over. It takes 3 days for settlement, then it’s all 2020 taxes.

  • Any shorts that are left at this point will want to cover

  • Finally, it really kills me to say this but it's a damn good-looking chart...

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Long term, I am still not a believer. In fact, I believe this is a rally in the context of a bear condition on this stock. I think the business model is very problematic, and it may take years to work out. There will be a painful realization that the ride-share business is a commodity. The only way out is some of the other possible businesses that Dara can get growing that there might be a viable business underneath, but at a valuation far lower than the private market predicted. Or, if due to Dara’s tremendous talents original investors can get their money back, good for them. Back to the chart, we see a nice “Cup-and-Handle” formation with the price significantly above the trendline. If you pull back a bit, there is even a well-defined reverse “Head and Shoulders.” Where do I see this trade going? Just simply modeling the price from the chart, as I did with the Amazon (AMZNchart from Friday and I calculated where I thought AMZN could go in the interim. I took the bottom 26ish, subtracted that from the interim high of 34, giving us 38ish. The line is at 37 as a reminder not to be a pig. We add 8 to the current price taking it to 38 would give you 22%. Playing for that kind of return would be way too greedy for fast money trading. Just make sure the stock price stays above that trend-line. Otherwise, take the loss fairly quickly.

Round-up of Assorted Weekend Business Shows

5G Hype Growing

Hans Vestberg CEO of Verizon (NYSE:VZ) had the bulk of Fox Business's “Wall Street” to talk about its business. 90% of the time was spent on talking up VZ's 5G strategy. VZ and Amazon's (NASDAQ:AMZN) J/V for 5G computing stresses edge computing. Hans sees three big business opportunities for 5G:

1- Mobility - My take: faster downloads, fewer dropped calls, and better movies. Essentially just better 4G service. This is the first phase.

2- Home - My take: With their high wavelength spectrum they expect to compete with cable companies for home internet (good luck with that). This is the second phase likely for more suburban areas.

3- 5G Mobile edge computing biz and home, bringing computing to the edge where you can take advantage of 5G. Miniature 5G compute centers (AMZN J/V). My take: This is the most intriguing and the most promising. Hans was short on details here. He did have two applications, which were essentially about better throughput (low latency) and not the super creative applications that will really unleash wealth creation. But then we are about 3 years away from that. His two examples were; Gaming: superlow latency video game Batista, and with the NFL for stadium media management.

We have investments in fiber and virtual network, things we have been working on for years. The millimeter-wave spectrum is our advantage. Disney+ is working for us. We are investing -18 billion in our network infrastructure. We are even setting up mini-cell towers with edge computing for intensive applications in urban areas, and office parks. We will continue to raise dividends and reduce our debt level to pre-Vodaphone acquisition.

We have spoken to 50-60 US CEOs about 5G computing. Mentioned mini-towers for coverage.

My take: I am not a believer in 5G as yet, as I said in my piece this week. However, this coverage is but a sign of the crescendo of 5G hype that is coming as a buildup to the release of the Apple (AAPL) 5G iPhone. If anything you do, get confirmation of my assertion that it's now time to speculate in such names.

I want to reference the mention of mini-tower building in dense urban areas to enhance functionality. This confirms my reference on filtering and even Valmont (VMI) for the towers and specialized cabinets for the edge computing capability.

Barrons Roundtable on Fox Business

What’s the top pick? Amazon (AMZN) could it be that they read the charts too? billion in projected cash flow, they think that doubles in the next 4 years. Very supportive of my call for AMZN to be the leader in this melt-up phase.

Bloomberg TV Bloomberg Technology (Best of)

Mark Mahaney RBC Capital top pick for 2020 is for Uber (NYSE:UBER), with Kalanick out of the picture I can see UBER as a trade for January.

My take: See above, As I said, I think there is 20% in it. But yeah when I read all this stuff, putting it together with the news that Kalanick was out of the stock, I believe I even alluded to this change of heart on December 19th. I finally looked at the chart and was smitten.

Dan Ives Wedbush top pick Tesla 370 bear case 500-600 bull case

My take: Look, I have a LOT of respect for Ives. If he says something I tend to agree with him. In this case, I am going with Andrew Left, and calling for Tesla (TSLA) to moderate here. You know I don’t agree with Left on Peloton (PTON) and he tends to engage in hyperbole (so do I, I guess). However let me cite Citron's quote from Twitter: “Short term risk/reward now skewed to downside,” Citron added. “Much respect to (CEO Elon) Musk but we are buyers 100 pts lower.” So taking the two together, I think that on Monday, when the press releases the news that TSLA delivers its first Model 3 to Chinese customers the stock either stays flat or begins to fall. Ive’s bear case is 370 and Citron says 100 points lower which is 330. I would say that if TSLA falls to the midpoint, say 350, I would consider buying that level.

Bloomberg Tech Interview, with Gary Steele Proofpoint (PFPT) CEO

Cybersecurity Proofpoint security for next step; targeted threats. Spending on CyberSec will jump, essentially we have the physical infrastructure covered. The hackers now target people, not infrastructure, so now it's more personal. They first identify people, then they craft a personally targeted lure. We identify and block these efforts at work but now they are targeted at home. So we must educate employees. Email is still vulnerable. 94% of all breaches come through a single person on their email where most work is being done. Election themed attacks will be the meme for 2020. What about utilities and power grids? I think they will be okay on the physical infrastructure; the key once again is targeting employees on personalized attacks. Proofpoint prevents that.

My take: Cybersecurity is just too hard. I predict consolidation in this space. That said, I think this perspective is very important, names like Okta (OKTA), and Cyberark (CYBR) now makes even more sense to me. I guess we need to take a look at PFPT to see if what they have is unique or yet just another me-too product.

Barron’s Magazine

I always enjoy finding confirmation on my picks in Barron’s Magazine. Just this Friday, my first pick for additional leadership names in the chip sector was Applied Materials (AMAT). I promise that I have no advance notice of the article coming out before the weekend. So imagine my joy in seeing this...

Chip-Equipment Stock Applied Materials Is Not as Cheap — but Still a Buy

I would recommend reading up on AMAT before placing a trade on AMAT, MU, or AMD, or any other name. Understand why you are risking your money on something before you do.

CNBC Closing Bon Mot

Sentiment Running Hot: According to CNBC, the Ned Davis Daily Trading Sentiment indicator is at 90%. My understanding is that this number swings around a lot, but obviously, right now sentiment is high, you don’t need a chart to see that. This indicator will plunge if there is a small sell-off. It’s very twitchy.

Just To Make Myself Clear

I am modeling more than the usual small sell-off, but the market needs to go much higher in the next two weeks. Many people will refer to this as a “blow off” top. It’s not a myth, they do happen every few years. If we don’t soar 200 points or so from here, then we will chop around like we have done every 3 to 4 months, then go higher. This is obviously the preferred mode.

My Trades: I am still long call options on LOVESPLKHUBS, and BA. I broke down and initiated a tiny position in OTC:DEAC Warrants, and when I say tiny I mean it. I put it in my long term investment account because I intend to hold DEAC for several years. This is not my usual way. I only invest in dividend-bearing stocks in my investment accounts. However, if it is in my trading account, I will trade it. I have my failings, and I acknowledge them. I will write about this new wrinkle sometime soon.

Disclosure: I am/we are long CEACW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My trades as of Friday: DEACW these are DEAC Warrants. I know I said don't buy any yet, but I picked up a tiny tranche. If I do it I want you to know about it. That said, I DO BELIEVE it is going lower so hopefully, you have more willpower than I do. I am also long CALLS in LOVE, SPLK, HUBS and BA

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