With investors hitting the brakes on the market, is now a better time to buy, sell or remain out of harm’s way in Spartan Energy (NYSE:SPAQ)? Let’s see what’s happening off and on the price chart, then offer a risk-adjusted determination for the stock so investors can position safely for profits while avoiding larger potential crashes.
The electrifying rally led by the tech-heavy Nasdaq Composite has finally run out of fuel. The index is down roughly 12.5% since peaking in early September. And it has been an even tougher road for its most influential constituents.
Apple (NASDAQ:AAPL), the world’s largest company and whose valuation reached a recent, “so close you can taste it” $2 trillion-dollar capitalization has shrunk 25% in less than three weeks. And Amazon (NASDAQ:AMZN), perhaps the largest beneficiary of today’s novel-coronavirus-related stay-at-home trends due to its optimally positioned delivery business, streaming services and cloud platform, has tumbled 19%.
Yet September’s correction hasn’t been a one-way street owned exclusively by bearish operatives.
Communications sensation Zoom Video (NASDAQ:ZM) is up more than 4% Tuesday and closing in on a record close. And red hot EV stock Tesla (NASDAQ:TSLA) is down 16% from its Sept. 1 all-time-high, but has bounced back sharply the past two weeks from a bear market decline of 34%. Then there’s Spartan Energy. SPAQ stock is up 25% since the beginning of the month.
Wait, who? SPAQ stock is another SPAC or special purpose acquisition company. The group includes highly popular online sports betting upstart DraftKings (NASDAQ:DKNG), intergalactic travel outfit Virgin Galactic (NYSE:SPCE) and EV peer Nikola (NASDAQ:NKLA) among its ranks.
SPACs have become a favorite of momentum traders in 2020 who delight in lower share floats, valuations and businesses positioned in new technologies and growing markets. The combination is fuel for bulls and bears in search of volatility largely decorrelated from the broader averages. But with Spartan Energy, buyers could be getting in on the ground floor of one of the market’s next big investments.
Spartan is a Los Angeles-based EV manufacturer making noise with its luxury Fisker Ocean SUV. The SUV will be the first truly sustainable ride to hit the market. The car incorporates a vegan-friendly interior woven from items like recycled fishing nets and plastics. And importantly, performance hasn’t been compromised. In fact, the bar appears to have been raised with features like an optional full-length solar roof, 4WD and driving range of 250 – 300 miles.
SPAQ Stock Daily Price Chart
Source: Charts by TradingView
The Fisker Ocean sounds good and looks even better in a price range that has earned awards at this year’s Consumer Electronics Show (CES) where it debuted as a concept vehicle. But while consumers won’t be handed the keys until late 2022, Spartan is in position today to drive faster profits into the hands of bullish investors.
Technically, the company is making the right moves in today’s market to drive the stock higher. First, while the broader market has soured this month, Spartan has managed to rally strongly. Also, the relative strength has the stock positioned and consolidating around the 50% level of a constructive-looking corrective base that has formed over the last two months.
Ultimately, it’s not hard to imagine a bullish cup-shaped breakout and fresh all-time-highs for Spartan later this year. In fact, as a small cap stock and in a market that has shown its ability to defend riskier valuations, there’s more reason to see and believe a much larger rally is possible. By the same token, there’s little reason to buy the stock on weakness.
Today my suggestion is to wait for Spartan to break above the current consolidation and only go long on price momentum as shares move firmly into the right side of its base. And if that day arrives in the next one to two weeks, the November $20 / $30 bull call spread is one limited and defined risk vehicle that smartly allows bulls to strap in more safely and for big-time profits as well.
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.