One of the highlights of 2020 is the dawn of the SPAC (special purpose acquisition company) craze — especially around electric vehicles (EV). The success of Tesla (NASDAQ:TSLA) drew the interest of big money. In a SPAC, investors who have millions chase pie-in-the-sky opportunities. This year, they poured billions into the pursuit of EV companies, both new and existing. Hyliion (NYSE:HYLN) and Nikola (NASDAQ:NKLA) captured headlines. Regrettably, both stocks are against the ropes, but for different reasons. Today we consider the opportunity that may lie in HYLN stock for next year.
The Nikola flubs are famous, but Hyliion has no controversies on Wall Street yet. This doesn’t mean that HYLN stock hasn’t seen drama though, because it has. It rallied 470% in June only to crash almost all the way back down. The low last week was $15.35, and this may not be the end of it.
The fans of the stock will not like all that I have to say, but I am not a perma-bear. In fact, in November I wrote about the upside opportunity in it. However I also warned about staying long below $18.
The risk was obvious back then and it may be materializing now.
HYLN Stock Is Full of Hope
The opportunity in Hyliion is not for the masses since they specialize in class-8 trucks. In other words, it’s not going to be competing with Tesla. It currently offers a hybrid model where one of the axles uses electric drive.
Much of the excitement, though, is around the upcoming Hypertruck ERX. I don’t blame the fans, because that thing looks awesome. That alone wouldn’t get me into the stock, but it’s the main point of contention.
Earlier I mentioned the problems with NKLA, and I bet they spilled into this stock as well. Not that this is also a vaporware product, but one can’t help but wonder. Maybe it’s a coincidence, but since September the two stocks have traded in lockstep to one another.
I’ve discussed HYLN stock with dozens of traders, and they are passionate. Almost every time, someone mentions “the warrants” as a reason for the price drop. Nothing has changed in the fundamentals in the last few weeks, so the reason must be technical. Investors are very consistent and this is more true now that most of the trading is done by machines.
The Warrant Magnet
In this case, HYLN stock could have a date with $12 per share. Technically, once it lost the $18 ledge it triggered a bearish pattern that targets a price below the warrant strike.
And therein lies another part of the discussion. There could be 12.5 millions new potential shares to the owner of warrants. We won’t know how many will materialize until the deadline Dec. 30. The price for those would be $11.50, and that’s probably also acting like a magnet while waiting. The concept is strange to know that the stock base will suffer a dilution on a specific date. It’s like closing one’s eyes knowing a punch a coming.
Clearly, this is not a typical scenario, and we are still in 2020 for another few days. The bottom line is that anything can happen. But the writing was on the wall once the bulls could not hold $18 per share. That was the base for the entire rally that started in July.
They tried valiantly to hold it on several occasions, first in October then in December. Finally the sellers overcame the buyers and they lost it for good. Since then there have been several attempts to recover it, but they failed. Dec. 17 and 23 were the bulls’ best efforts, so that’s the mark to beat. Until HYLN rises above $18 per share the sellers remain in charge. The machines will sell the pops and continue the descending trend.
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.
