Space may be the final frontier. For Virgin Galactic (NYSE:SPCE) customers, however, that boundary looks closer than ever. But investors should wait before rushing into SPCE stock. Why? It is better to wait for shares to make their own technical lift-off.
Space tourism operator Virgin Galactic is going places. Not today or next month, but maybe as soon as early next year. This past week, the company offered a taste of what is in store through a virtual reality experience of the rocket’s cabin.
Big deal you say? Well, it should prove a giant leap for mankind. Still, that is not all SPCE has up its sleeve as it continues to pursue other related technology-driven ventures for future profits.
Recent Headlines Have SPCE Stock Cruising Higher
On Monday, the company announced a partnership with legendary car manufacturer Rolls-Royce. As part of the initiative, Virgin unveiled a preliminary design for a commercial aircraft capable of flying at speeds exceeding Mach 3. To put the feat in perspective, the famed jetliner Concorde, which Rolls-Royce also worked on, had an average cruising speed of around Mach 2. And mind you, nobody has boldly gone down that path since.
The deal with Rolls-Royce generated excitement, as shares of SPCE stock climbed higher by nearly 7%. But the business move is also noteworthy as the partnership expands Virgin Galactic’s reach in this compelling transportation market. Back in May, the company noted its plans with NASA to develop high-speed, point-to-point city travel for civilians.
Plus, also on Monday, Virgin Galactic released its second-quarter earnings. But unlike the Rolls-Royce confession, earnings news has investors less than pleased.
Shares are down nearly 10% in pre-market trading Tuesday. Virgin Galactic reported a worse-than-expected loss of 30 cents per share. Unsurprisingly, it also reported a lack of revenue. But perhaps most important is news that the company is tapping the capital markets with a secondary offering of 20.5 million shares. Existing investors are worried about dilution and broadly how this move will pressure future growth.
SPCE Stock Weekly Chart
Technically, the call of “all systems go” comes down to confirmation of one key idea for a successful position. Following some modest but well-constructed consolidation work, Virgin shareholders need momentum to reassert themselves or risk much larger losses in the near term.
As the illustrated weekly chart shows, momentum will make its presence felt if SPCE stock can rally above the high of last week’s inside consolidation candlestick. The reason momentum would be present is that confirmation of the weekly pattern puts the stock marginally outside the upper Bollinger Band and would likely generate a bullish stochastics crossover in overbought territory.
It’s not for the faint of heart.
But as the price move also reclaims the 50% corrective level within the right side of the larger base, the possibility for a quick rally would have a lot working in its favor.
How to Trade Virgin Galactic Here
Make no mistake, this isn’t a widows-and-orphans strategy for deploying capital. Nevertheless, entering SPCE stock on momentum does offer younger investors exposure to an interesting growth theme. It also protects against immediate fears of further weakness or a correction in SPCE stock.
To be clear, there is no promise that Virgin becoming the next growth darling like Amazon (NASDAQ:AMZN) or Tesla (NASDAQ:TSLA). However, for those with the resources to accommodate a riskier stock, putting SPCE on the radar for purchase above $26 makes sense.
Here is the bottom line. If a momentum-based entry does unveil itself, as in the past, I’d still offer an out-of-the-money call spread as a more suitable position for long exposure versus boarding Virgin Galactic shares.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. Investment accounts under management do not currently own positions in any securities mentioned in this article. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.