Shares of Uber Technologies Inc. experienced a downward slide as they were downgraded following the emergence of a worrisome "bearish engulfing" chart pattern.

Analyst Robert Mollins made the rare decision to downgrade the stock from a buy rating to a hold, after maintaining a bullish stance for the past 2 1/2 years. This places Mollins as one of the few analysts out of the 51 surveyed by FactSet who are not optimistic about the future of the ride-hailing giant's stock.

At midday trading, the stock (UBER, -0.23%) had dropped 0.5%. Since closing at a record high of $65.11 on Friday, it has experienced a 1.7% loss.

One key factor behind Mollins' change in recommendation is his belief that the bullish catalysts, such as the expansion of the Uber One subscription plan internationally and the growth of its profitable ads business, have already been factored into the stock's price. He also points out that expectations of capital returns to shareholders have already been priced in.

Over the past three months, Uber's stock has skyrocketed by 44.8%, while Lyft Inc. (LYFT, -0.24%) shares have also seen a substantial increase of 22.8%. In comparison, the S&P 500 index (SPX) has advanced by 15.2%.

Mollins also expresses concerns about current Wall Street estimates regarding underlying profitability, believing that they may be overly optimistic. Additionally, he warns of potential risks associated with other cities following New York and Seattle's lead in implementing higher mandated wages for app-based delivery workers.

Interestingly enough, Mollins' decision to downgrade comes just two days after the emergence of a "bearish engulfing" candlestick chart pattern, indicating potential trouble for Uber's 19-month bullish trend.

A "bearish engulfing" is a two-day reversal pattern. In the first part, on Friday, the stock opened at $64.90 and closed at a record high of $65.39, trading within an intraday range of $64.41 to $65.39.

Rising and Falling: Analyzing Uber's Stock Performance

The stock market witnessed an interesting turn of events for Uber on Monday. After reaching a new all-time high of $65.44 at the opening bell, the stock climbed even higher to $65.61. However, things took a sharp and unexpected U-turn as it plummeted to an intraday low of $64.15. Eventually, it closed the day with a 0.9% decrease at $64.55, ending below its opening price from Friday.

This intriguing pattern suggests that both Friday and Monday marked a buying climax for Uber's stock. If the bulls still possessed momentum, the bears wouldn't have been able to execute such a successful counterattack.

Don't Miss: Discover 7 Key Candlestick Reversal Patterns!

Similar to the well-known technical price chart pattern called a "key reversal," the appearance of "bearish engulfings" serves as a warning sign that the previous trend may have reached its end. In Uber's case, the preceding trend had driven the stock up by an impressive 218%, starting from a two-year low of $20.46 on June 30, 2022, to Friday's record closing price.

Investors should pay close attention to this reversal pattern based on historical precedence. The 16-month downtrend that concluded in June 2022 was initiated by a "bearish engulfing" pattern on February 11, 2021, right after the stock closed at a record high of $63.18.

Furthermore, on January 14, 2021, another "bearish engulfing" pattern emerged, resulting in a substantial 19% correction before hitting bottom.

Naturally, as shown in the accompanying chart, there have been instances of "engulfing" patterns that did not produce the expected outcome.

Analyst Sentiment and Price Targets

While most Wall Street analysts remain optimistic about Uber's stock, their outlooks don't offer significant gains on average.

Interestingly, out of the 51 analysts surveyed, the average target price for Uber's stock is $67.44, implying a modest 5.4% upside potential from the current prices.

To provide some perspective, Mollins slightly increased his price target to $66 from $64, but downgraded the stock due to the limited 3.2% upside potential it suggested.

Gordon Haskett believes that stocks with buy ratings are likely to outperform the broader market by over 10% in terms of total return.

As the stock market continues to fluctuate, it's essential for investors to carefully consider the implications of reversal patterns and maintain a cautious approach when assessing Uber's stock performance.