Electric vehicle company Xpeng (NYSE:XPEV) has shown a lot of volatility in recent weeks, but it looks as if Xpeng stock will keep tracking up. This isn’t too much of a surprise.
There’s very little that can dampen the Street’s love affair with electric vehicle stocks. Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO), remain red-hot, but it’s Xpeng stock that I find most attractive as we head into the end of the week.
Bulls abandoned it in December but are now stampeding back in to make up for the lost time. Here’s what I find most impressive about this company so far this year.
Xpeng has only scored three solid up days so far, but the returns on each session were enormous. The gains on January 7th, 12th, and 19th (as of 2 PM EST, at least) were 9%, 22%, and 13%, respectively.
The volatility has been on par with the robust rallies from back in November and speaks to the stock’s return to favor.
Steer Clear of XPeng Stock No Longer
In my January 6th message titled Steer Clear of XPeng Until the Trend Turns, I said the stock would have to break $47.69 to buck its downtrend. At the time, that was the most recent pivot high.
Well, not one week later, buyers returned to create the epic 22% jump. It also jammed prices back above the 20-day and 50-day moving averages. The three-bar pullback that ushered us into last weekend was the primary reason for today’s trade pitch.
Volume patterns during a retracement can be telling. If the participation is high, it often signals institutions ringing the register and departing the stock.
When distribution like this hangs over the stock, it can be challenging for the next rally to succeed. On the other hand, if the volume is low (as it is with XPEV stock), it’s usually just mild profit-taking. Buyers’ return is often uncontested and makes the next upswing all the more likely to stick.
No wonder yesterday had the stock ripping 13%.
A second dynamic lending appeal to a bullish trade is the retest of the 50-day moving average and old resistance. The principle of polarity states that previous ceilings become new floors and vice versa.
XPeng returning to the scene of last week’s breakout gives buyers a second chance of sorts. Those who missed out on the initial burst can now enter around the same price level – at least, they could at least if they entered before today.
Looking forward, the stock doesn’t have much by way of resistance until it’s record high near $75. Consider that the ultimate target for the newfound uptrend.
Ways to Trade XPEV Stock
My previous message on XPeng stock suggested naked puts as a high probability strategy for the potential breakout. The trade is working, and I continue to like naked puts (or bull puts if you want a lower cost play) for those desiring a positive theta position.
If you want something a little higher octane (read: a higher ROI potential), then bull call spreads are the way to go. We’re going to buy a slightly out-of-the-money call option and offset the cost by selling an even further OTM call option.
If XPEV stock can rise past the higher strike by expiration, then you’ll capture the max gain of $7.85.
The Trade: Buy the March $60/$70 bull call for $2.15.
The max loss is $2.15 and will be forfeited if you hold all the way to mid-March and the stock sits below $60. By risking $2.15 to capture $7.85 potentially, your potential return is a mouth-watering 365%
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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