Trading Blueprint for GrubHub (GRUB) Earnings Report

Meal delivery service GrubHub NASDAQ: GRUB reports Q4 2019 earnings after the close on Wednesday, Feb. 5, 2020. Analyst's expectations are for negative ($0.03) earnings per share (EPS) on revenues of $325.85 million. Investors will want any updates on any strategic options management may be exploring, despite company reps squashing the rumors. Any hints of consolidation, activist stakes or consideration of strategic alternatives can spark another squeeze. The food delivery business is a money-losing proposition so a viable path to profitability will be critical in painting a positive narrative.

Macro Context and Influences

The S&P 500 ETF NYSEARCA: SPY is our macro market indicator. Market sentiment has improved from the recent market sell-off to SPY low of 320.74 post-market on Jan. 31, 2020. The daily stochastic is crossing up off the 20-band trying to stabilize above the 328.12 Fibonacci (fib) price level with the next lower fib at 326. The market is shrugging off the Coronavirus fears and attempting to resume its risk-on buy-the-dip sentiment with upside fib target 331.15 before reversion.

Technical Analysis

Utilizing the rifle charts, GRUB collapsed from 60.20 to 32.11 in its reaction to the prior Q3 2019 earnings report triggering a capitulation bottom and monthly market structure low (MSL) that triggered longs above 43.82. This is the key support level for bounces if shares slip under the 5-period moving average (MA) at 47.08. The monthly 15-period MA resistance is at 62.45, which completes the initial channel tightening on the stochastic 20-band crossover up. The weekly has been in a stair-step mini pup formation that peaked out with an MSH at 59.40 and MSH sell trigger under 53.54. Its obvious GRUB has potential for huge price swings as evidenced by the reaction to last quarter’s earnings, 56.51 is the gap fill. The weekly upper Bollinger Bands (BBs) are at 69.05. Shares are prone to panic-driven buying and selling and requires a full view of the playing field and planning well ahead of the earnings release. 

Sympathy Stocks:

While GRUB is the pure-play for meal delivery services, Uber NASDAQ: UBER is a top competitor with its Uber Eats platform. Foodie social media site Yelp (NASDAQ: YELP) tends to gain positive correlation when GRUB makes extensive price swings. These two would be the sympathy plays if GRUB shares extend beyond a 10-percent price move on earnings reaction. Make sure to gauge positive correlation first by comparing charts beforehand. If GRUB gaps up, then confirm a gap up on UBER and YELP. Since they aren’t pure plays. Speculation of the consolidation, activist interest and merger considerations during the conference call are the key catalysts to galvanizing positive correlation with UBER and YELP.

Trading Game Plan:

GRUB will have wide spreads upon initial post-market earnings release and on the market open the following morning. The most volatile period will be the morning session right off the opening bell. Price swings can be very large, and this stock has a habit of overshooting sticky 2.50s and 5s zones by up to 30-cents. Make sure to stack bumpers (IE: sticky zones + fibs + key MAs and BBs) and scale shares in smaller bite-size pieces within your comfort zone. Placing enveloped limit orders at the upper and lower range is a technique experienced traders can implement since the algos will be moving at lightning speed.  There key reversion zones are spread very far apart to accommodate extreme volatility. Upside envelop gap reversions are at 59.56 weekly MSH, 62.40 monthly 5-pd MA, 66.40 fib and 69.62 daily upper BBs and sticky 5s zone and 70.77 the 1.618 fib extension. The downside envelope gap reversions are at 50.91 fib, 47 monthly 5-pd MA, 43.82 monthly MSL trigger, 36.55 super fib. Keep in mind, these are the likely reversion price inflection points on the first test. There are more price levels in-between including addition fibs and sticky prize zones, which can be traded off throughout the day. The purpose of the volatility envelopes is to get an immediate snap back reversion for quick profits or stops on the second reaction to on the earnings gap.

Depending on the time of the day, consider using 20-cents to 50-cents wiggle room upon first tests. Scalps can range from 30-cents to 80-cents initially before shrinking as ranges get tighter by mid-morning. If the gaps exceed the 10-percent level, then watch for UBER and YELP as potential sympathy stocks to trade.