October’s scary ride in Fisker (NYSE:FSR) has been put into the rearview mirror this month with shares racing higher. But is now a good spot for new investors to buy into FSR stock? Let’s see what Fisker is offering off and on the price chart and present a well-aligned, risk-adjusted determination to avoid being a crash test dummy.
Electric vehicle manufacturers and special purpose acquisition companies. Nikola (NASDAQ:NKLA). Workhorse (NASDAQ:WKHS). Lordstown Motors (NASDAQ:RIDE). Kensington Capital Acquisition (NYSE:KCAC). Hyliion (NASDAQ:HYLN). Those are among the high-profile names sporting this combination. And for better or worse, Fisker is among those ranks.
In 2020, EVs brought into the market vis-à-vis reverse mergers and blank check companies have been a hugely popular vehicle on Wall Street. And with any good theme sold as the next big thing for investors, there will be many more casualties than stock investments which go on to thrive and reward shareholders.
Think cannabis stocks such as Tilray (NASDAQ:TLRY) or Aurora Cannabis (NYSE:ACB) among other high-profile, high-fliers that have nose-dived the past couple years or the dizzying amount of now bankrupt internet stocks spawned during the Dot.com bubble.
If history does repeat with today’s group of hot stocks, it should serve as a warning. Still, and amid this emerging market of big and attractive sounding ideas, FSR’s prospects look approachable, sans the fanciful “it’s the next Tesla (NASDAQ:TSLA)” sleazy sell-side pitch.
In a nutshell, Fisker is an eponymously named California-based electric vehicle automaker marginally famous for its early-to-the-scene, plug-in sports sedan, the Fisker Karma which debuted in 2012. This year some engineered wheeling and dealings with Spartan Energy resulted in a merged FSR stock making its debut this past month while netting the outfit more than $1 billion in cash.
The cash of course is nice to have, particularly so given Fisker’s valuation of just over $1 billion in market capitalization. But so is the company’s latest flagship luxury EV, the Fisker Ocean SUV. The vehicle is the market’s first truly sustainable automobile incorporating a vegan-friendly interior. And importantly, those aesthetics haven’t sacrificed what’s under the hood. The Fisker Ocean also sports four-wheel drive, a driving range of 250-300 miles and even an optional solar paneled roof.
To be fair, the rubber hasn’t met the road as of yet as the Ocean isn’t set for release until 2022. Nevertheless, with some history of executing in the past and Fisker’s Ocean SUV offering a well-featured and affordably-priced concept vehicle which won awards from this year’s Consumer Electronics Show, taking a test drive sounds okay, right?
FSR Stock Weekly Price Chart
All stocks correct. Even the best of them. TSLA investors and even shareholders in Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), the market’s two largest companies, have been dealing with that very fact the past couple months despite the S&P 500 and Dow Jones Industrial Average hitting new highs.
Mindfully, not all corrections finish with a happy ending though. And most certainly don’t go on to produce gains enjoyed over time in TSLA, AAPL, MSFT and other select top stocks. Still and with caveats in place, Fisker’s emerging corrective base does look promising.
Technically and after hitting a precarious relatively low immediately in front of its Oct. 30 reverse merger, shares of Fisker have exploded higher. The stock is up about 70% in November. Moreover, the volatile price action has now also established a large bullish double bottom or ‘W’ base that’s formed since Fisker’s partner in crime, Spartan Energy, first caught the attention of investors back in July.
Currently, a broader market tailwind in Monday’s session allowed FSR stock to narrowly eclipse the pattern’s mid-pivot at $18.24. Mid-pivot entries for purchasing shares are often viewed favorably by growth traders considering long positions. Along with downtrend and 62% resistance both already broken and a supportive weekly stochastics, this particular occasion, looks all the stronger.
Traders using a mid-pivot purchase may have their sights on an even larger breakout of the base in the coming weeks and potentially use a trade-through signal as a spot to add to the position. For Fisker shares that would occur at the stock’s pattern and all-time-high of $21.60.
Conservatively, gains of 30% are typically expected from this kind of pattern approach before taking initial profits relative to starting pattern risk of about 10%. But I’d refrain from buying FSR stock. Instead, my recommendation for a cool-sounding company but one with a long road ahead of it and within an increasingly fragmented and challenging EV narrative, is to buy an out-of-the-money bull call spread.
The combination of leverage, finite and reduced risk offered by a vertical of this type can’t be beat. One favored vehicle which fits in well with the possibilities for Fisker both off and on the price chart is the February $20/$30 call spread.
On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any 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.