Shares of Nikola (NASDAQ:NKLA) crashed Monday. But is now a good time to buy, or is this an EV name to avoid at all costs? Let’s check out what’s happening off and on the price chart of NKLA stock, then offer a risk-adjusted determination in alignment with those findings.
It was a disappointing start to the work week for a market led by the Dow Jones Industrials the past month. Shares of the blue-chip index fell about 1% in Monday’s session.
Call it a case of modest profit-taking after striking all-time highs, challenging “Dow 30,000” a handful of occasions, and returning roughly 11% in November on the back of Covid-19 vaccine relief and a mostly well-received Biden Presidency.
Nowhere was Monday’s action more exaggerated and in continued synchronization with the downshift in investor enthusiasm than in an extremely hot and volatile electric vehicle space. Demonstrating outsized relative and absolute strength this past month, Tesla (NASDAQ:TSLA), Nio (NYSE:NIO), Workhorse (NASDAQ:WKHS), Lordstown Motors (NASDAQ:RIDE) and other leading EV stocks slumped on the session with losses on either side of 5%.
But one persistent outlier in the group (and no stranger to combustible behavior over the past six months) were shares of Nikola. The controversial EV stock with grand plans to produce hydrogen fuel-cell and battery electric-powered pickup trucks and semi-trailers tanked 27% Monday.
Driving the dramatic sell-off, Nikola’s much publicized $2 billion partnership with General Motors (NYSE:GM) is taking an undesirable detour. Likely feeling the heat from GM stakeholders given Nikola’s checkered past, the auto giant announced it’s backing away from building Nikola’s marquee Badger pickup truck.
Today’s much-weakened collaboration, and one many Nikola investors briefly saw as a lifeline when the deal was announced in September, will now only involve supplying Nikola with GM’s fuel cell hydrogen technology for its semi-trucks. Keep on trucking?
NKLA Stock Weekly Price Chart
Source: Charts by TradingView
The good news for a few NKLA stock investors is shares are up nearly 70% in 2020. But let’s be perfectly blunt, that group is in the definite minority.
Since debuting in early June as a reverse merger and briefly fetching about $30 a share, 100% of those shareholders are underwater and upwards of 30% currently. And for those that bought the stock closer to Nikola’s racy all-time high of $93.99 set less than two weeks after its unveiling, the investment has proven a much more challenging affair.
Technically and if investors are still in it to win it, there is still some hope. As the provided weekly chart illustrates, shares remain slightly above key support which Nikola successfully tested back in September. A hold or a successful variation could produce a double bottom in shares, right? It could.
Bottom-line, I reserve the right for using the predictive power of price charts and execution of stock purchases and exits for investments that aren’t rightfully in the crosshairs of deceit and controversy. Nikola is no such vehicle. Sorry.
Still, rather than recommend less cautious Nikola investors pull the plug on shares or warn future buyers from a purchase, I’d simply advocate the use of a fully-hedged, limited risk and flexible collar position.
This type strategy allows investors to navigate a stock where the bears appear ready to declare victory once and for all, but in a market where guarantees are anything but certain.
On the date of publication, Chris Tyler holds, directly or indirectly, positions in Nio (NIO) and its 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.
