Uber Technologies (UBER) rocketed out of the gates at the start of the year. But shares ran into a brick wall in early February…
Through April, it steadily drifted lower. Investors feared that rising interest rates and a slowing economy would put a pincer on Uber’s growth.
However, a surprise earnings beat at the start of this month ignited Uber shares again…
Shares recently traded at over $39, which is a whopping 60% jump so far in 2023.
Yet after such a dramatic rise, technical signals warn that Uber could be in danger of overheating.
So, today I want to check out Uber’s chart to see what’s in store from here…
Highly Volatile
On the left-hand side of the chart below, Uber bottomed out in June and July last year (orange line)…
That level represented a near-70% fall from its all-time high back in February 2021. (Note that Uber’s fall began nine months before the broader tech sector’s tumble in November later that year.)
Since then, Uber has remained highly volatile…
Uber Technologies (UBER)
Source: eSignal
In addition to Uber’s price action, that volatility appears in the 10-day Moving Average’s (MA, red line) movement across the longer-term 50-day MA (blue line). It crossed the 50-day MA multiple times in both directions.
And our momentum indicator, the Relative Strength Index (RSI), shows volatility too. It has swung rapidly between the upper and lower half of its range on either side of the green line.
Usually, when a stock is trending in one direction, the RSI will hug that side of that band (upper half when rallying, lower half in a downtrend).
However, today I want to concentrate on what’s happened since Uber’s better-than-expected results on May 2…
As you can see, it initially jumped higher off those results. But the rate of Uber’s rally has steadily slowed down. Uber has had to work harder to make a higher high each day.
Momentum is stalling, with buyers losing their enthusiasm.
That’s also backed up by the recent action of the RSI…
After ripping higher through the upper band, the RSI has plateaued in overbought territory (upper grey dashed line) and is gradually drifting lower.
Take another look:
Uber Technologies (UBER)
Source: eSignal
Uber is potentially looking overcooked for now. So what am I looking for around here?
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Wait for the Right Signal
One clue lies in the previous price action when the RSI went into overbought territory (red circles)…
That happened in August and September 2022 and again in February 2023 – and now, most recently, in May.
As the chart shows, when the RSI reversed from overbought territory, that coincided with Uber rolling over and heading down…
Even back in August 2022, when the RSI didn’t break through support (green line), that still represented a 17% move.
We might not see a move of that magnitude right now. But a pullback in Uber (even briefly) could still set us up for a solid gain.
The thing to remember, though, is that just because the RSI is tracking in overbought territory, there is no guarantee that Uber will fall.
Instead, we need to see the RSI clearly reverse and fall before we consider jumping onto a short trade.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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