The 2020 pandemic accelerated all things technical. That’s part of why we’ve seen the rise of the electric vehicle. But it has also bolstered the continuing push toward tech for self-driving cars. Luminar Technologies (NASDAQ:LAZR) supplies that industry with Lidar tech. Consequently the mania has engulfed LAZR stock starting late last year.
Just in its two months of public life, Luminar technology has already seen its fair share of action on Wall Street. LAZR stock has had a 360% rally, then a 50% drop, followed by an 80% rally.
This is definitely not a stock for the faint of heart, and the bulls need intestinal fortitude to own it.
Spoiler alert — I think this is one to own for a lotto-style long-term win. Eventually it should deliver profits for those who are patient. The biggest hurdle to their commercial success is the law. I bet it will take a while before fully autonomous becomes legal. Meanwhile the company pursues its goals to them “safe and ubiquitous.”
Trade the Short Term LAZR Stock Action
Meanwhile there’s plenty of action to trade in a short-term.
Fundamentals aside, there are technical opportunities for a ton of shorter-term profits. For the last month, the stock price action has established a clear range. There are buyers when it approaches $28, and sellers near $36 per share. Active traders in LAZR stock can trade the range for as long as it persists. This means buying it under $29 with a tight stop, and selling it above $35. The real excitement is when the price action leaves this box especially when upwards.
A breach of either side of those limits will carry momentum in that direction. So the real opportunity for the bears is if they manage to break below $28 per share. Conversely, if the bulls can break above $36 they can enjoy another run at the highs. Neither will have an easy time doing this. This is a bullish market, so I favor the odds of the Luminar bulls. The probability of a breakout scenario are higher than the breakdown. There will be resistance near $38 per share from prior failures.
In this environment, I have found success in a fairly simple short-term trading mantra. When a stock establishes a range like this, I like to either buy the dip or buy the rip. If I am not active enough to trade the range, then I wait for the dip and buy it. In this case, it would be the opportunity to catch a bounce up from support near $25 per share.
Conversely I would wait for confirmation of a breakout from the upper limit of the range and chase it.
The Confidence of the Management Is Encouraging
While the fundamentals are still a pie in the sky, the company is confident in its mission. The Luminar team believes that it has a big edge against its competition with production costs. They also tout a healthy book of orders. They secured business from major corporations with about a dozen more in the works. Therefore, I have reason to expect upside potential from this company in the long run.
In addition, even though they aren’t meant for it, I bet that we will have an explosion of drone use. That eventually may creep into Luminar’s realm.
When I like a stock but am unsure of its future, I prefer using options to mitigate my risk. In this case, I can sell the LAZR March $20 put and collect $1.20 per contract. No money leaves my account — in fact I receive a credit for the opportunity to buy it lower. If Luminar rallies, then I earn the equivalent of 4% with no out-of-pocket expense. If it falls below $20 by mid March then I would be long LAZR stock. I don’t lose money until it falls below $18.80 per share. That’s a safety net equal to 36%.
There is the matter of LAZR being a SPAC (special purpose acquisition company). This raises the chance of finding nasty surprises down the line. I am not calling that a fact, but it’s a possibility — we’ve seen it happen in Nikola (NASDAQ:NKLA). The IPO process is long and arduous for a reason. It gives investors time to pick on its scabs to see if they bleed before they invest. This reduces the odds of finding out nasty things in retrospect, like what happened with WeWork.
Lastly, it is important to acknowledge the extrinsic risks from the overall state of the markets. I have no doubt that this is a bull market still, but it’s long in the tooth. That alone is not a reason to short, but it’s a downside risk that could affect LAZR stock. Meaning regardless of how good this opportunity is, the drop can happen through no fault of its own.
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.