How to Trade Lyft After Its Earnings Rally

Lyft is hitting new 52-week highs after the company delivered better-than-expected quarterly results. Let's look at the upside and downside on the chart.
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It took a year to get back to these levels, but Lyft  (LYFT) - Get Report has finally recouped its losses from the selloff in the first quarter of 2020.

The stock had not had a great run as a public company up until that point. However, shares were finally starting to move higher in February 2020 as investors gained confidence in the business.

Then COVID-19 hit and the stock price was hammered lower. Lyft shares fell in five of six weeks, losing an astounding 73% from peak to trough in that span.

Fast forward to February 2021 and the stock is pushing to its highest level in more than year.

While revenue declined sharply year over year, Lyft delivered a sales beat along with a better-than-expected bottom-line.

Additionally, management provided one line in particular that is giving investors optimism: “We should experience a growth inflection beginning in the second quarter that strengthens in the second half of the year.”

The news also was boosting Uber  (UBER) - Get Report, which is set to report earnings on Wednesday after the close of trading.

Trading Lyft

Daily chart of Lyft stock.

Daily chart of Lyft stock.

Notice the big breakout in the fourth quarter, as Lyft stock burst over downtrend resistance (blue line). Not only did the stock leave little doubt about the strength of this move by clearing resistance so dramatically, but it also climbed in seven straight weeks.

The move sent Lyft above its 10-week and 10-month moving averages.

Since then, it has been trending above these measures. That will need to remain true in order for Lyft stock to maintain its trend.

I really liked the most recent test of the 10-week moving average. Granted, Lyft temporarily broke below this measure, but after a long test with $50 resistance, this moving average buoyed the stock before sending it soaring above resistance.

This week’s rally sent shares above the prior 2020 high at $54.50 and up to the 61.8% retracement of the entire trading range.

If Lyft stock can continue over $60.50, it could put a move all the way up toward $72.75 in play, near where the 78.6% retracement sits.

I would love to see the stock hold up over $54.50. If it can’t, it’s not the end of the world. However, bulls will certainly want to see Lyft maintain above prior resistance at $50.

Here’s the bottom line: Above $54.50 is bullish and keeps $60-plus on the table. Below $54.50 is less bullish — but not bearish — and keeps $50 support in the realm of possibilities.