Nikola (NYSE:NKLA) is right in the middle of the special purpose acquisition company (SPAC) mania. It is also riding the electric vehicle charge against the internal combustion engine. Add to it the drama that the company has created for itself and you have a high voltage NKLA stock.
This makes for a dream ticker for traders and a nightmare for investors.
My conclusion is that this is a binary bet as an investment. Meaning it’s either a fraud or it’s not! Only time will tell if it’s a good idea to buy shares now. Those who trust it must label it as a speculative trade at best. Meanwhile, it is exciting to trade around the action. If the markets hold up, I’d give a small edge to the bulls for the next three months.
Disrupting an industry as big as this is difficult under ideal conditions. NKLA’s path is far less than that. Believing in it too much is a mistake because not even the EV experts know the full story. Risking a finite amount on it is perfectly fine because that’s what investing is all about. If there were no risk, there would be no reward.
The stock hit its maximum last June and in a big way. At its crest it was almost three digits. But that only lasted for hours before crashing down to its December lows. The bulls mustered enough gumption for a 120% Santa Claus rally in a month. They gave back about 35% since but they could just be reloading for another upswing.
Trade NKLA Stock While You Can
Therein lies the second way to risk money on NKLA stock. Trading is different than investing because I could change my mind as the price action unfold on the charts. For this stock to really rally it needs to break out from its last failure near $31 per share. If the bulls are able to break through it, they can then recover the levels from last September. They will face plenty of resistance zones on the way to $48 per share, but crazier things have happened.
My opinion of the stock quality doesn’t really matter. I don’t believe either extreme assumptions on it, so I judge it purely by its chart. I would also consider whatever real milestones they hit. I am still of the opinion that NKLA stock fans need to have faith not proof. This is what’s required to own it for the long term through all the doubts. That group’s pitfall could come if they love it too much. I try to leave emotion out of it. That’s why for speculative bets it’s extremely important to not average down. I set the risk amount I am willing to lose and I manage my odds.
For traders it’s a bit different. Their decisions are easier because they can determine trade parameters based on current action. In December my thesis was that support zones were strong and to hold it through the first quarter. While I didn’t nail the absolute low, that’s what happened. Price is truth!
A Proper Thesis Is Key to Success
Regardless of methods, one should first establish a proper thesis for risking the money, and the stop loss points. Otherwise the trade would be more hope than strategy. So far the technicals have not failed us. They gave us the courage to catch a knife late July, and kept us out of chasing it in September.
Neither bull nor bear should be very confident investing in this company. The bulls need to create a new support level closer to $20 per share. That’s how higher-lows action breaks through resistance zones.
I don’t have a lot of faith in what the company says given its track record with honesty. Therefore I will actually wait for actual results. My mantra here is for management to show me, don’t tell me.
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.
