Shares of Nikola (NASDAQ:NKLA) continued to crash this past week. But has the fallout set up a better opportunity for bulls or bears, or is Nikola stock best avoided? Let’s review what’s driving shares off and on the price chart, then offer a risk-adjusted determination in alignment with that information.
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September has lived up to its reputation for volatile and bearish leaning price action. The leading tech-heavy Nasdaq has tumbled 13% from this month’s peak and all-time high to this past week’s low. But a smart-looking bid on Friday bodes well for a new rally to emerge.
Looking forward, index influencers Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Tesla (NASDAQ:TSLA) and others are in strong position to build upon last week’s technical platform and lead the way to new highs. But in a market made up of stocks, make no mistake, playing Nikola poses unique non-market risks, as this month’s price plunge of nearly 90% emphasizes.
It’s no secret Nikola, Wall Street’s former special purpose acquisition company darling, has turned into a wreck for buy-and-hold investors. Shares of the hydrogen fuel cell, big rig, and pick-up truck outfit resurfaced as a repackaged SPAC back in early June in the mid-$30’s. The stock breathtakingly traded to $94 in four sessions on the back of a risk-on environment in full swing, aided by its marketing and promotion-savvy founder and CEO Trevor Milton.
It has been all downhill for bullish NKLA investors ever since. Just one session removed from its all-time-low of $16.15, shares of Nikola have lost 82% of their peak valuation. What has gone wrong for Nikola investors?
NKLA Stock Downfall
What began as profit-taking in June turned quickly into a bearish correction as investors collectively reassessed Nikola’s success in manufacturing fanciful hype, rather than physical product. It wasn’t until earlier this month that conditions turned epically bearish.
A one-two punch of an initially well-received, but quickly questioned $2 billion partnership with General Motors (NYSE:GM), followed by a bearish analyst note from short-seller Hindenburg Research warning of NKLA’s history of lies, deception and outright fraud, sent shares plunging. But the nail in the coffin for many Nikola investors was news this past week Trevor Milton was stepping down as CEO.
Intended to instill confidence, the move severely backfired as shares plunged 43% to new lows. Investors may be fearing the departure is an admission of guilt that won’t be easy for the company to move past.
At the same time, NKLA’s insider CEO transition to board member and former GM vice chairman, Stephen Girsky, may have also spooked shareholders wanting a fully-neutral industry veteran (outside the immediate friends and family circle) as Nikola’s new head.
Nikola Stock Daily Price Chart
Source: Charts by TradingView
Ordinarily and with what appears to be a bullish Nasdaq-backed follow-through day in place from Friday, I’d be open to making the case for bottom-fishing in NKLA. Given the extreme relative weakness this past month and plunge of more than $75 in stock price since its June peak, if nothing else, a swing trade positioned for a bounce would look approachable. But Nikola is not a typical growth stock that’s simply hit an unusually volatile bump in the road.
Bottom-line, a failed technical bottom twice over on the NKLA price chart isn’t good. More importantly, an unclear scandal at the top, technology still deserved of a skeptical eye, and hefty $7 billion charge to fill up on shares leaves room for yesterday’s pump to yield additional dumping.
Unlike earlier this month, that’s not a sell recommendation. Given Nikola’s continued off-the-chart volatility, even placing a limited and reduced risk bearish options strategy is a ride investors might consider reserving for a future pick-up.
On the date of publication, Chris Tyler did not hold, directly or indirectly, positions in any of the securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. 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.
