Is it too late to grab some Grub (GRUB)? Depends on how you trade it. Here’s my take. (August 04, 2017)
Lets look at GrubHub ( NYSE:GRUB ). Wouldn’t it have been nice to have bought that thing on Thursday? Or maybe back here at the low in early June? That is not the case though. The company reports earnings, much better that expected and you can see what happened to the stock. That is kind of rear view stuff, lets go ahead and look forward. This was major buying here, this is institutional buying; Billy Bob and Jethro, two of my good buddies who own a tackle and trading shop, 7.5 million. Billy Bob and Jethro don’t buy that. This is major institutional buying, we have seen this before. You zoom out and you can see, this has been a volatile stock, it has been a tough stock to own. I sure as heck wouldn’t have owned it back then. I wouldn’t buy it now either.
Lets look at this a little bit deeper. It takes 8.5 days, that is almost half a month, for short covering if just the shorts were buying the stock, short interest. Almost 25 percent of the float is short, so there are a lot of folks betting against this stock and so far the bet is not paying off. I think some of the impetus behind this move is you are going to get some short covering. Is it too late to buy this stock though? Well lets just look at the percentages. Right here would really be like the break out area. Lets just go ahead and draw a line here. This would be the breakout buy. You would go ahead and if the stock breaks out above that level then buy at about $48.00 or so. A classic breakout from a prolonged base here. So that is $48.00. Now the stock is up several dollars more.
Well, think about it, you are up 10 percent above the breakout level. That is kind of a little bit high to be buying the stock now, so I wouldn’t really just rush out first thing Monday morning and buy the stock. You run the risk of buying high and then selling low. But if we look at it on an intraday chart we can actually craft a trading plan. This is Friday’s move here. You can see that the high here of $53.50 or so was set in late morning. It wasn’t just this first move. A lot of times you will see a stock scream, a big move up, then pull back and never get back to that high. That is just the way stocks trade. Big, massive volume in the morning and then it kind of tapers off and there is no real increased buying interest in the stock. Well this is different here. The stock actually stayed up most of the day. That is a real bullish sign. Then right at the close you get another big spike in volume. Folks are buying this stock before the weekend.
So what I would suggest doing is this: Monday, if the stock starts printing a new high that is when you start ratcheting into a position. You go ahead and take a little bit of stock. If it prints a new high you take a little bit of stock and the reason you are taking it is because you can continue foresee this stock continuing move. So what would tell you that you are wrong? Easy, the stock will fall back into the trading range. So, you don’t have to put a stop down here, you can put a stop right up here. This is just an opening position. By definition you are chasing the stock. It is up 10 percent, you have to respect that. The only reason, the only reason you are chasing the stock is because you think it is going to go higher. And so if it doesn’t, well hello, you are wrong. That is trading.
So the way you can make this trade is to put a tighter stop in place, and make it a logical one, don’t just pick a price. And the price would be back BELOW, the only reason you are buying it is if this hits a new high. That is step #1, it has to hit a new high. Step #2, then you put your stop back a little bit below this and make sure that you take your position size into account. However many shares you are buying, times the difference between where you are buying from and the stop, that is your risk. Know what your risk is before you are taking a stock. That is how you trade GrubHub ( NYSE:GRUB ) on this breakout. We have seen this is some of the solar stocks, where they break out and just keep going. It could happen in GrubHub ( NYSE:GRUB ) but there’s you trade so that if does you can capitalize on it. And if it doesn’t, you know what? Nothing ventured, nothing gained, and not too much lost.