Recently amped up Workhorse Group (NASDAQ:WKHS) is seeing investors continue to pull the plug. But does that offer an opportunity for today’s buyers? Let’s look at what’s going on in the market, as well as off and on the price chart of WKHS stock to reach a stronger risk-adjusted determination.
Some WKHS investors must be asking themselves, what just happened? After defying a broad-based September correction with brutish relative and absolute strength to reach momentum-driven all-time-highs and gains approaching 1,000% in 2020, October volatility has turned outright seasonally bearish for “last mile” commercial EV and drone delivery upstart Workhorse.
And with a new trading week underway, conditions aren’t getting any better for Workhorse shareholders.
Out-the-gate Monday WKHS stock was off about 7.50%. The pressure compares unfavorably to a mostly flat tech-heavy Nasdaq Composite index and 800 lbs. EV gorilla Tesla (NASDAQ:TSLA) which are largely shaking off broader market pressure in the likes of the Dow Jones Industrial Average and S&P 500 index linked to continued investor concern over rising Covid-19 cases, pre-election jitters and a stalled congressional stimulus package.
To be fair, EV plays Nio (NYSE:NIO), Nikola (NASDAQ:NKLA) and XPeng (NYSE:XPEV) are also showing losses on the session. But WKHS remains the weakest in the space. So, what gives? Why has Workhorse continued to decorrelate, first while the broader averages corrected in September and now during the market’s improved situation and rally over the past month?
Forces Hanging Over WKHS Stock
Some of the weakness in WKHS can be attributed to a still-pending announcement by the U.S. Postal Service regarding its $6.3 billion next generation delivery vehicle contract. The deal is now expected to happen before the end of the year. And importantly, it can’t be stressed enough that time is money, a lot of money, as it relates to this significant award.
Bottom-line, a deal with the USPS, even a piece of the contract, would prove a big win for WKHS. The thing is shares are still up more than 515% year-to-date. At the same time, and as InvestorPlace’s Chris Lau noted, last quarter’s sales amounted to a measly $92,000 while WKHS stock fetches nearly $2 billion in market capitalization. So yeah, it’s understandable some investors could be growing antsy. Obviously, there’s a lot at stake.
Then there’s Fuzzy Panda Research. Without getting into the well-publicized nitty gritty, earlier this month the short-seller issued a damning attack on the company which stated that Workhorse misled investors on multiple fronts which could knock it out of contention with the USPS. And some investors did in fact, do more than simply listen to the report as shares sold off in the report’s immediate aftermath.
WKHS Stock Weekly Price Chart
Source: Charts by TradingView
The last force at work in WKHS is that all stocks correct. And as some investors have learned, that goes for champs and the most dominant of companies such as Apple (NASDAQ:AAPL). It’s also true that volatile, smaller capitalization up-and-comers with modest stock floats which lack of institutional support are even more prone to falling victim to periods of non-correlated bearish price behavior. And the fact is Workhorse shares check all those boxes.
The good news is Workhorse is entering value territory on the price chart. With shares of WKHS having now corrected 40% from their Sept. 21 all-time-high, the stock has already overshot a more common cyclical decline of around 30%. Optimistically, the bearish decline could go from a situation of near-term pain and into an opportunity for longer-term gain for shareholders. That said, though and technically speaking, today’s discomfort for shareholders isn’t yet showing signs of finishing on the weekly chart.
The lost ground since October’s peak in share price is taking on the shape of a “W” or double-bottom corrective pattern. It’s bullish. Having formed one pivot low following September’s all-time-high and then a mid-pivot high earlier this month, shares of WKHS should be monitored for a second lower-low pivot to develop to make the case for an intermediate-term bottom. That’s the first step.
A second critical step in our observation is for investors to wait for a currently misaligned stochastics indicator to favorably cross back over into a more supportive position. This appears all the more important given Workhorse has failed the 38% Fibonacci level tied to its year-to-date cycle and band support could allow WKHS to continue driving towards $13 a share before and if, all is said and done.
On the date of publication, Chris Tyler held, directly or indirectly, positions in Nio (NIO) and its derivatives, but no other securities mentioned in this article.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.