It was a good start to the workweek for XPeng (NYSE:XPEV). And today, given what’s happening off and on the price chart and coupled with a limited-risk options strategy, XPEV stock is set to deliver smarter, risk-adjusted returns for tomorrow’s investors.
Fisker (NYSE:FSR). ChargePoint Holdings (NYSE:CHPT). Arcimoto (NASDAQ:FUV). Workhorse (NASDAQ:WKHS). Electric vehicles of every which kind were back in huge favor with investors Monday. And XPEV stock, with its gains of 7.57% on the session, was right up there with the best of them.
For EVs whose wheels land on American roads or whose charging stations sit on the corners of Main & Wall Street, rekindled enthusiasm for the country’s infrastructure bill. That backing also applied to unprecedented federal investment in clean energy development and building a greener economy was a certain driver.
Rotation Helps XPEV Stock
But for China-based XPEV, whose autos aren’t on U.S. soil, shares likely benefited from a continued “risk-on” rotation back into EV stocks.
As a group electric vehicle stocks were among this year’s hardest hit investments since mid-February. Factors include interest rate, semiconductor shortage and price multiple fears. And of late, let’s just say Wall Street has had a change of heart.
That’s not all XPEV has going for it though.
Xpeng’s ability to smartly move alongside Monday’s bullish traffic flow was also tied to Tesla (NASDAQ:TSLA). No stranger to challenges in China and whose market is the world’s largest for electric vehicles, Tesla began a recall of more than 285,000 of its vehicles within the country’s borders.
The recall is the first of its kind for Tesla. And it is troubling with roughly 30% of the company’s EVs sales tied to the Chinese market. But was it really necessary? InvestorPlace’s Joanna Makris sees the situation, whose fix is a simple software patch, as less about safety and more about a turf war China is vigorously defending.
China’s Support Is Key
Irrespective of investors’ stance on free or state-controlled markets and who might ultimately prevail, today it is what it is.
And right now China’s actions are a certain support for XPEV. And not to be dismissed, so are XPeng’s “smart” EVs, which are in an arms war against other domestic competition Nio (NYSE:NIO), BYD Co (OTCMTKS:BYDDF) and others.
Bottom-line, Xpeng’s advanced internet, AI autos have been making a name for themselves. They are viewed as smart vehicles a technological cut above the rest. It’s helped provide a windfall with XPEV enjoying sure-footed, triple-digit sales gains over the last year.
And looking forward, XPEV stock price chart hints of similarly strong, nearby momentum and big-time profits for bullish investors.
XPEV Stock Weekly Price Chart
Source: Charts by TradingView
XPEV has enjoyed a nice run since bottoming at $22.73 in early May. But if we’re to trust a stock’s ability as a forward-looking price mechanism, today’s 88% return appears to be a pitstop for relative and absolute outperformance for XPEV stock in the back half of 2021.
Technically and as the weekly price chart reveals, shares of Xpeng have entered a second week of inside price consolidation after hitting a relative high of $45.75. It’s XPEV’s first such pause since its rally began. And, it’s a welcome respite to digest the rally and work through overbought conditions.
The breather in shares is occurring around the stock’s year-to-date marker and 38% retracement level. As much, the observation is a breakout entry that looks well-positioned for a quick and firm move into the right side of XPEV stock’s large corrective base.
Today, I’d suggest keeping an eye on shares for a breakout through $45.75. Critically, a bullish weekly stochastics crossover should accompany the buy decision to confirm price momentum. If in the coming days both conditions are met, a slightly out-of-the-money August $50/$55 bull call spread should offer outsized, risk-adjusted returns for XPEV bulls that makes sense off and on the price chart.
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.