This year will go down in history because of what Covid-19 did to humanity. We will also remember how we shut down the world for months. But on Wall Street they will tell stories about how 2020 was the year of the SPAC (Special Acquisitions Corporations). Kensington Capital Acquisition Corp. (NYSE:KCAC) is one that came to light in mid-August. But on Sept. 3, Kensington capital stock soared almost 100% in a flash. The company’s goal was to buy out its way into the EV revolution.
The jubilation continued for one more day as KCAC set another record and extend the gains to 150%. Alas, that marked the top and since it has gone downhill fast. So far it gave up 44% but it is still 30% above the Sept. 3 breakout line. That’s a major setback for the bulls especially those that chased the hype too late.
How to trade it from here requires speculation on the future of EVs and some technical charting skills.
The Kensington Capital Stock Spike
The reason Kensington capital stock spiked was over the news of its merger with QuantumScape. QuantumScape specializes in revolutionizing batteries. That’s going to plug a big need for the EVs that are coming to market.
The new union has the backing of powerhouse names like Bill Gates and Volkswagen (OTCMKTS:VWAGY). Given the recent Nikola (NASDAQ:NKLA) shenanigans, vetting them is extremely important. Justin Mirro, founder and CEO of KCAC, has the credentials in automotive to lead this thing.
Not all EV start ups will be successful but the ones that are will need batteries. KCAC will have the opportunity to serve this budding industry. While Tesla (NASDAQ:TSLA) has created the best challenge against the internal combustion engine (ICE), the effort is still an embryo.
In 2019, the world produced over 90 million vehicles. This year it will be fewer due to the interruption from the pandemic. Nevertheless that is a ton of potential because EVs barely make up 3% of the total vehicle sales. There is plenty of business to grab. KCAC has a long runway ahead of it provided they deliver on their promises. The science from QuantumScape will be the ace up their sleeve.
The Charts Will Matter
I don’t profess to be an expert on the matter but skimming the top line suggests potential. Owning Kensington Capital stock is a pure bet on the future success of this new alliance. Therefore by definition it is a speculative trade so it can’t be massive.
I don’t have an edge in the knowledge-base but I can give myself an edge from the charts. That’s where a little bit of technical analysis go a long way. Conviction is scarce when the bet hinges on hopium. Learning a few lines on a chart can help with that.
After a 47% fall from grace, KCAC stock found footing at $13.50. This now becomes the line to hold else the chute continues to fill the gap. Conversely, rallies into $17 per share will face resistance. The selling pressure will start near $16. In fact, every ledge on the way down is now resistance on the way up. The mega-spike caused a lot of damage because it broke the normal price patterns that machines like to follow.
From here, the bet remains the same as before and that is binary. Investors who like the concept should just buy it for the long term reward. If Kensington is indeed one of the suppliers to the EV industry then they will have a fat reward. The potential addressable market is so huge that there will be business to go around for all.
Tesla is succeeding so others will too. KCAC is following that trend while already in bed with VW, the largest car maker on the planet. That’s a good position to have and it will gladly do its part in the EV fight against ICE.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.