PreMarket Prep Stock Of The Day: DoorDash

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

In these types of markets, what you see or read may not always be what you get. A perfect example of this is the price action in DoorDash Inc. DASH.

Crazy Price Action Off IPO: For investors trying to play the DoorDash IPO off technical analysis, it has been tough sledding. After the opening print at $182 on Dec. 9, 2020, it peaked on that day at $195.50 and ended the inaugural session at $189.51.

Over the next month, sellers engulfed the issue taking it down to $137.14 on Jan. 4, which set the stage for a massive rebound. In volatile fashion, the issue worked its way up to $256.09 on Jan. 27. Its all-time closing high was made at $215.16 on Feb. 10.

After posting that all-time closing high price, the issue went into freefall once again. It exceeded the former all-time low on Monday when it bottomed at $130.03 and rebounded to end the session at $133.41.

The Dreaded Lock-Up Expiration: The original share lock-up agreement for DoorDash is 180 days from the IPO, which happens to be today (Tuesday, March 9). Over that course of time, the float in the issue will increase and provide more liquidity if any insiders decide to exit the issue.

With the lock-up expiration well known to market participants, savvy investors may short the issue ahead of the date in anticipation of excessive selling on the actual day of. With respect to DoorDash, the retreat was already in motion and it should be noted the issue shed $35 over the last five trading days ($158.89 to $133.41).

Sellers Do Not Always Deliver: The problem with this strategy is that the amount of stock for sale on the expiration day is not known. In the case of DoorDash, how many insiders would be willing to dump all or part of their stake at a 50% discount to an all-time high made last month?

PreMarket Prep Take: When the issue was being covered on the show, it had already made its premarket low of $123.42 and was trading at the $130 area. The author of this article urged traders to be careful on looking for too much on the downside.

Along these lines, it was mentioned that on several occasions issues that have sold off ahead of the lock-up expiration often reverse course and move higher on the day of the actual event.

Price Action During The Regular Session: After a flat open, the issue headed lower but matched Monday’s low ($130.03), reaching $130 and sharply reversed course. As of 1:30 p.m. ET, it rallied as high as $147.11. On the upside, there's limited daily resistance until Friday’s closing price of $151.48.

The full discussion on DashDoor from Tuesday’s show can be found here: