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PLUG Stock Not One That Investors Can Easily Time

It’s been a great November for shares of Plug Power (NASDAQ:PLUG). And strong tailwinds suggest there’s more to come in 2021 and beyond. But is now a smart time for investors to go charging into PLUG stock?

3d render image of hydrogen energy fuel cell from Plug Power
Source: Shutterstock

Let’s take a quick dive into what’s happening off and on the price chart and propose a risk-adjusted determination aligned with those findings.

Entering the work week and the final trading session for November, this year offered investors strong validation of bullish seasonal tendencies. The major indexes have jumped roughly 10% – 13%. That’s certainly nothing to sneeze at. And the performance looks more impressive on a closer inspection. Among those large-cap market gauges, the Dow Jones Industrial Average has struck record highs and challenged “Dow 30,000” on the back of constituent Chevron’s (NYSE:CVX) 30% jump and Boeing (NYSE:BA) soaring 47% for the month.

Yet smaller market capitalization stocks have ruled the day, or more aptly the month, with gains of 13.5% and 16.7%, respectively, in the iShares Core S&P Small-Cap ETF (NYSEARCA:IJR) and SPDR S&P Midcap 400 ETF Trust (NYSEARCA:MDY). And there are few publicly traded companies where the bullish momentum has been stronger than in hydrogen fuel cell transportation specialist Plug Power whose shares were up 78% for the month.

Big Biden Plans Should Fuel PLUG Stock

It’s not exactly a secret of what’s behind the market’s strength, let alone PLUG’s outsized gains. November has offered relief on the Covid-19 front. Pfizer (NYSE:PFE). Moderna (NASDAQ:MRNA). AstraZeneca (NYSE:AZN). They’re household names at this point with emergency-use vaccinations to like begin in December. Enough said, right? On that front, yes. But the U.S. also has a new President-elect Joe Biden.

The incoming administration has big plans to expand the use of renewables and alternative energy solutions. That’s not entirely a surprise either, but the fact is Team Biden has put together nine key elements to make a clean energy revolution a reality and which Plug Power stands to be a key beneficiary of.

Biden’s energy agenda is worthy of bipartisan agreement and real improvements in tackling climate change. And along with EV, solar and wind plays Tesla (NASDAQ:TSLA), First Solar (NASDAQ:FSLR) or Brookfield Renewable Partners (NYSE:BEP) whose products and solutions are already leading the way, Plug Power’s continued execution in 2020 is ensuring its inclusion in this top echelon of alternative energy stocks heading into 2021 and beyond.

PLUG Stock Daily Price Chart

Plug Power (PLUG) at risk of corrective move
Click to Enlarge

Source: Charts by TradingView

With the wind, or more aptly McKinsey’s “Hydrogen Economy” at its back, Plug Power sounds like a terrific growth story worth buying into. However, based on today’s PLUG stock price chart, an entry point for buying shares is definitely a riskier undertaking. As the detailed daily chart above emphasizes, the stock is beginning to fail a steeper and unsustainable trendline. Stochastics appears to confirm this weakness.

The good news is stocks correct all the time. Apple (NASDAQ:AAPL). Microsoft (NASDAQ:MSFT) or Netflix (NASDAQ:NFLX) — It even happens to the best of the best. And November was a real-time testament to that very fact. More importantly and from the vantage point of buyers, this type of cyclical weakness should be a welcomed opportunity for tomorrow’s investors to buy shares of a leading stock at a discount.

As much — and given our belief Plug Power is at risk of entering this type of bearish cycle — I wouldn’t suggest buying a naked long stock position today. The fact is, declines of 30% are common for a growth story of PLUG’s caliber. And mind you, that’s when the broader market is supportive. In risk-off environments, losses can be significantly larger.

Given a 30% correction would result in shares trading near $20 a share or even challenging longer-term support from $16 – $19.50 if a “slightly” more bearish phase emerged over the coming weeks, buying PLUG stock today near $27 isn’t particularly appealing. Of course, neither is waiting on the sidelines and watching the stock go significantly higher if our cautious outlook proves less-than-accurate.

One way around this quandary is to buy PLUG stock using a collar strategy. Bottom-line, using this type of spread allows investors to be more financially and mentally ready to adjust the stock position and capitalize on weakness, rather than throwing in the towel on a great longer-term holding when there’s the inevitable bump in the road.

On the date of publication Chris Tyler and / or accounts under management hold a long position in Plug Power (PLUG) stock and its derivatives

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.

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