QuantumScape Makes For A Compelling Contrarian Trade

A bottom is in. But QuantumScape (NYSE:QS) investors have been down that road before. Today, let’s look at what’s happening off and on the price chart of QS stock to better determine if this is truly ‘the bottom’, as well as a risk-adjusted determination to keep investors from getting run over.

A sign for QuantumScape (QS).
Source: Michael Vi / Shutterstock.com

Last year QS stock suddenly became the next big thing among speculators betting on a greener future for EV companies. Shares soared nearly 1,100% in less than two months by late December. The rally was somehow even more sizable than it sounds too. The rally took QS shares from $11.25 to a high of $132.73 and peak valuation of almost $25 billion. And that reaction wasn’t without cause either.

QuantumScape’s next-generation multilayer, solid state technology just might be the holy grail of batteries. It’s the type of progress desperately needed if EVs are to become truly mainstream and put fossil fuel combustion engines in the rearview mirror.

Drastically improved cost, driving range and charging times, plus massively better for the environment. That’s what QuantumScape is all about. And with hundreds of millions invested in QS by real world influencers Volkswagen (OTCMKTS:VWAGY) and Microsoft’s (NASDAQ:MSFT) Bill Gates, rather than fast money Redditors, what could possibly go wrong? Apparently a whole lot, as many investors found out the hard way with QS stock.

Today shares of QS are off 77% from their December high. And there’s been no shortage of reasons for the treasonous stock action. There’s the broader risk-off trade which took hold of higher and no-multiple growth stocks like QS. And in 2021’s more trying environment, QuantumScape’s capital raising efforts and increased R&D spending have been tried and found guilty of inflicting additional undue pain on investors.

But damage in QS has also been specific to QuantumScape’s so-called Jesus battery. Some aren’t believers. Nearly 19% of the QS stock float has been sold short. And in April, a rather large PDF indictment from a bearishly-vested Scorpion Capital said the battery company was nothing more than a pump and dump scam.

More challenging for investors than Scorpion’s ripe-for-the-environment and largely baseless accusations, is that QuantumScape’s battery technology simply isn’t ready for the EV market. Demos since late 2020 have the company on track. But positive and massively scaled down results under ideal lab conditions are a far cry from a product ready for real-world applications.

QuantumScape believes a pilot program for its technology might happen as early as sometime in 2024 with commercial production expected “shortly” thereafter. That’s still a couple of years out though. It’s a lot to ask of investors. As well, what’s promising today could ultimately fail to live up to its original billing as a lot could still go wrong… or not.

QS Stock Weekly Price Chart

QuantumScape (QS) a weekly doji bottom has been confirmed, but is it 'the bottom?'


Source: Charts by TradingView

For investors that are optimistic on QS stock, the payoff could be huge. But with those dreams of high rewards comes the possibility of a total loss. And don’t expect to commiserate with Bill Gates or Volkswagen if QuantumScape’s Jesus battery doesn’t materialize.

Right now and technically, I’m drawn to QS as a contrarian investment. With the size of its correction, understandably that has some merit. And today, shares are trending higher off a weekly doji bottom backed by Bollinger Band support and bullishly-positioned oversold stochastics indicator.

The declaration of “the bottom” in QuantumScape shares is another matter. That kind of authority might take a rally above last month’s high of $37.13. Still, even if investors waited for that kind of confirmation, stochastics remains M.I.A. on the larger time frame. But I do see enough evidence to make a smarter buy in QS stock.

Bottom-line, I’d treat QuantumScape as a trading vehicle with a bullish bias using a dynamic QS stock collar.

The limited and reduced risk spread can effectively take the gambling aspect out of this stock’s significant volatility risk. And over time, even at much lower levels in QS, given a series of adjustments as QS jumps around, profits can be built up in the collar position. And with two to three years to bide or not, the August $35/$45 combination is a great spot to initiate that campaign.

On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


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