Nikola Stock Charts Say Buy, Fundamentals Say Sell

Nikola (NASDAQ:NKLA) has seen a polar divide form on Wall Street. When it comes to the electric car space though, polar division is nothing new. Despite its lacking fundamentals, Nikola stock continues to push higher and higher.

Red Hot Shares of Nikola Stock Are About to Start Losing Steam
Source: Stephanie L Sanchez /

The company now commands a market cap of $27 billion. That’s bigger than Fiat Chrysler (NYSE:FCAU), maker of Dodge pickups and Jeep. It’s also larger than Ford (NYSE:F), which makes the most popular vehicle in the U.S. with its F-Series pickup.

How in the world can Nikola,  which has no real revenue, have a larger market cap than either of these other automakers?

The simple truth is it shouldn’t. But it does and that’s something that investors and traders have to respect until the trend begins to change. In short, investors are looking for the next Tesla (NASDAQ:TSLA), which just topped $1,000 per share earlier this month and became the world’s largest automaker by market cap.

First of All

There’s a few “first thing’s first” points we need to cover.

Leading off, a lot of investors get very disgruntled at stocks that trade at undeserved valuations. Think Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) five to 10 years ago.

They get mad that these unworthy stocks trade at such a high valuation, then short them simply because the valuations are not supported. The funny thing is, they are generally correct in some way, shape or form, but often pay the price by being too early.

Case in point, investors also did not like Tilray (NASDAQ:TLRY), which rallied from $20 to $300, as short-sellers who sold blindly were burned badly even when they turned out to be right.

Second, the momentum is with Nikola and the group. Nio (NYSE:NIO) continues to charge higher, up 240% from the March low and more than 100% over the last month. We don’t even need to highlight Tesla to know well it has done.

In the case of Nikola stock, fundamental investors will be right at some point too. But to short blindly would be a violation of my final point, which is price action. For that, let’s turn to the charts.

Trading Nikola Stock

chart of nikola stock
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Source: Chart courtesy of 

Nikola stock continues to trade incredibly well. The 10-day moving average is holding as support, while this “high and tight” formation is resolving to the upside. Tuesday’s 7.2% rally created a weekly-up rotation, putting the $75 to $80 gap in play. Over $80 and the all-time high up at $94 is possible.

Above that puts the obvious mark of $100 in play. I’m not saying it will get there, but there’s a road map for it to happen.

Keep in mind, shares pulled back, the company had negative news and there are simply no fundamentals to back up its price. And yet, here we are, with bears unable to crack the 10-day moving average.

Arguments are worthless, but price pays. So far, that battle is being won by the longs and until the technicals fade the other way, I’m not going to get too bearish on Nikola.

Breaking Down NKLA

At the end of the day, this action can’t last forever, though. While the technicals look wonderful, the fundamentals just won’t support such a valuation. In the last three years combined, Nikola has less $1.5 million in sales. Operating expenses continue to grow and I’m sure you can guess at what side of zero free cash flow sits on.

There is no business here because Nikola is still in the R&D phase as it continues to work on its electric pickup truck and its semi-truck vehicles.

Now keep in mind it will be competing with Tesla’s futuristic Cybertruck — which has more than 650,000 pre-orders — and Tesla Semi, as well as Ford, Dodge and a whole host of others. While it may not repeat some of the same mistakes that Tesla did in its earlier days, it’s bound to run into a few issues of its own — that is, assuming there is demand for its product.

Investors are betting on this being the next Tesla and maybe it will be. For now, I would be cognizant of the charts, but realize that once the technicals crack, there are not yet any fundamentals to lean on.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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