XPeng (NYSE:XPEV) slid into year-end and has yet to right the ship. As long as the trend remains lower, bullish trades are a fool’s errand. But I’m open-minded and willing to change my tune if prices require it. I will share when, why, and how I’d buy XPEV stock.
Electric vehicle stocks exploded in 2020, with Tesla (NASDAQ:TSLA) being the obvious industry leader. Perhaps no other event was more emblematic of the niche category going mainstream than the S&P 500, finally adding the company to its ranks.
The prestige brought newfound focus to electric carmakers across the globe. Many lesser-known names were riding Tesla’s coattails to great gains. XPEV stock was among them, rising over 300% between September and November. Cooler heads and profit-taking prevailed into the holiday season, but prices still finished nearly double the IPO day’s closing price.
It certainly didn’t hurt that speculation ran rampant last year. Robinhooders and other fast money seekers had EV stocks on their radar every single day. The low share prices (sans Tesla, of course) and high volatility made them mighty tempting for gunslingers.
With the shine coming off XPEV stock over the past month, however, I think there are superior plays in the space. Tesla is still in a powerful uptrend, as is NIO (NYSE:NIO). Workhorse (NASDAQ:WKHS) has neutralized in recent weeks, but at least it participated in the broad market rally on Tuesday.
Comparatively, XPEV looks weak.
XPEV Stock Is Under Pressure
As a charting purist, I believe the last few price pivots’ relationship reveals more about a stock than anything else. In turn, it provides clearer signals on how to time trades than any other signals. In the case of XPeng, I see a clear short-term downtrend since the mid-November blow-off top.
Along the way, the volume tapered off, showing traders’ initial excitement is dissipating. How long the descent lasts is anyone’s guess, but as long as the series of lower pivots stands, the path of least resistance is anything but higher.
If you want some reason for hope, consider the following. First, though we’ve retraced over half of November’s gains, we remain well above the two-month base, near $20. Second, the 50-day moving average seems to be putting up a fight as support over the past week. Third, the resilience mentioned above, particularly with Tesla and Nio, tell me traders aren’t abandoning EV stocks altogether. There’s a chance that they eventually return to XPEV and we see echoes of the November surge.
For that reason, I suggest watching Monday’s high of $47.69. It’s the resistance zone that needs to be breached for the current downtrend to end. Until then, steer clear of any bullish trades. Your time and money are better spent elsewhere. After Tuesday’s rapid rebound in the market, there are bullish charts galore.
What If Bulls Return?
If XPEV stock can claw its way back to an uptrend by piercing Monday’s peak, then I like purchasing shares or selling naked puts to capitalize. Buying stock is straightforward and delivers quicker and potentially easier profits than purchasing calls or call spreads would do. The sky-high implied volatility could make the call route a bit tricky.
On the other hand, if you want to increase your probability of profit, the elevated implied volatility allows us to sell really far out-of-the-money puts while still capturing a handsome payday.
Consider selling the February $30 or $35 puts if (and only if) XPEV takes out resistance.
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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