It’s not a secret many high-flying performances in electric vehicle stocks have come unplugged. Today though, the $550 billion dollar question to solve and profit from is distinguishing a bump in the road from a more permanent-looking detour. Let’s look at three EV stocks and how investors can safely navigate a high-octane market without becoming crash test dummies.
Electrameccanica (NASDAQ:SOLO). Nikola (NASDAQ:NKLA). Kandi Technologies (NYSE:KNDI). Fingers can and will point towards an undesirable secondary or two, a severely compromised partnership or bearish reports from widely followed short-sellers as motives for the stinging sell-off in EV stocks over the last several sessions. But the real spark was already staring investors in the face.
What was cautioning EV investors of a crash ahead and prior to those other headline drivers? Unsustainable price action of course. And the signs were readily available to see and fear on most EV stock charts.
Bottom line, losses of up to 30% are common in growth and thematic stocks after big run-ups. And more supportive investing environments like today’s market are no exception. Moreover, with excitable price behavior not seen since the cannabis or cryptocurrency bubbles and knowing how those played out, the painful price retractions in excess of 50% experienced in many of these EV stocks wasn’t terribly surprising.
So, it was great while it lasted, right? Actually, when the dust settles there will be winners other than just Tesla (NASDAQ:TSLA). And who knows, maybe there’s another future EV kingpin worth $550 billion whose shares today are offering much smaller valuations? Personally, I’d caution that’s highly improbable. Still, that sort of skepticism doesn’t take away from today’s diffused animal spirits and three EV stocks to trade based on what we’re seeing off and on the price charts.
EV Stocks to Trade : Hyliion (HYLN)
Source: Charts by TradingView
The first of our EV stocks to buy are shares of Hyliion. With HYLN, we’re not out to find the next Tesla. We’re excited by where Tesla’s next big move in the EV market is and it’s not a sports car, it’s the long-haul transportation market. But Hyliion’s Hypertruck ERX juiced by RNG, or renewable natural gas, has some compelling advantages over the competition including Tesla’s ambitions.
Under the hood, HYLN investors will find this EV stock offers exceptionally low fuel cost, existing natural gas infrastructure, superior driving range, environmental sustainability vis-à-vis RNG’s methane capture, better payload capacity, faster recharge time and superior horsepower. Enough said, right? Almost.
Technically, this company is offering investors the chance to buy a deeply discounted double-bottom pattern helped along by misinterpreted warrant redemption news this week. I’d say it’s time to back up the truck on this one, but with the provision of not holding the bag if shares can’t hold critical pattern support.
Favored Strategy: April $20/$35 Bull Call Spread
Nio (NIO)
Source: Charts by TradingView
Shanghai-based EV stock Nio is the next of our EV stocks to buy. In the search for the next Tesla, there may be no better vehicle to park capital than in shares of Nio. The stock has been on a tear this year. But unlike most of today’s fantastical and still conceptual works in progress, NIO has been executing with monster sales growth legitimizing its rightful place in the EV market.
Technically and as discussed above, all stocks correct. Even the best of them. And in the case of NIO, an unsustainably steep rally has quickly succumb to a classic size correction of just over 30%. Stochastics on the weekly chart is showing little reason to suggest this week’s sell-off couldn’t turn uglier. However, given this EV stock’s standing in the group and premise most corrections of this magnitude don’t go on to become more punishing bear market cycles, a smart starter position in this “pint size” Tesla looks about right.
Favored Strategy: Feb $40/$60 Collar
EV Stocks to Trade : Tesla (TSLA)
Source: Charts by TradingView
Okay, I may have lied. For our last EV stock to trade, it’s not all about finding the next Tesla. The thing is, there’s no reason to try and reinvent a perfectly good wheel in motion, right? Well, at the moment at least.
On the price chart, the undisputed EV giant recently broke out of its own three-month-long, “bump in the road” basing pattern. Ironically, the bid aligned itself just as other lesser EV stocks were feeling Tesla’s halo effect failing in noticeably big ways.
Assisted by a nicely trending stochastics setup on the weekly timeframe, the observation is a measured move out of the slightly-flawed “W” base could see shares fetching $650 inside the first quarter of next year.
Favored Strategy: March $600/$650 Bull Call Spread
On the date of publication, Chris Tyler held, directly or indirectly, positions in Nio (NIO), Electrameccanica (SOLO) and their derivatives, but no other 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.
