Li Auto (NASDAQ:LI) is doing a lot right these days. But is the EV hybrid play firing on all cylinders and worth a purchase right now? Let’s look at what’s happening off and on the LI stock chart, then offer a risk-adjusted determination aligned with those findings.
What goes up, must come down as the saying goes. And so it went this past year in rather dramatic fashion in electric vehicle stocks. And China’s LI certainly wasn’t immune to that reality.
Making its Nasdaq debut last summer, LI stock motored higher by just over 200% by late November to a high of $47.70. And less than six months later, the alt luxury auto outfit was squarely parked right back where it started. Shares dropped to a low of $15.98 in early May.
LI Stock Investors Not Alone
Not that LI investors were alone in their misery.
From EV giant Tesla (NASDAQ:TSLA) to upstart Churchill Capital (NYSE:CCIV) still looking to put its rubber to the road or China peers Xpeng (NYSE:XPEV) or Nio (NYSE:NIO), sizable and market leading gains over the past year were met by unusually challenging bearish cyclical U-turns in 2021.
Blame it on what you will. And many did with fingers pointed in the direction of supply chain disruptions. Most notoriously, worries over semiconductor chips integral to auto stocks.
A broader market rotation out of higher-multiple growth plays and into safer value havens which began in February, also helped put a bearish wind at LI and most other EV stocks.
With those bearish drivers largely in the rearview mirror the past couple months LI stock managed to recoup roughly two-thirds of its losses by July.
This month though, growing global economic recovery concerns were felt. Also, worries grew over China’s government imposing restrictions and cybersecurity reviews on newly U.S. listed stocks. Action taken on ride-hail operator DiDi Global (NYSE:DIDI), for one, has LI investors backtracking in a sympathy reaction.
Since peaking at $36.66 on July 1, LI has tumbled nearly 20%. It’s a healthy correction. But, it’s also fairly common for a younger growth stock of Li’s caliber.
Moreover, there’s obvious fundamental support to consider buying on weakness. Factors include the alt vehicle maker recently offering record monthly deliveries for June. There’s also surging triple-digit revenue growth for Q1. And, an updated release of Li’s popular hybrid Li One model just hit the streets.
Today and importantly though, the LI stock price chart isn’t supporting a technical pullback as being at the intersection of where growth meets value.
LI Stock’s Weekly Price Chart
Source: Charts by TradingView
Sometimes and when it comes to a healthy and typical pullback or corrective move, even 30% can be quite common. And that’s when a stock like LI has the market at its back. When conditions are less surefooted, larger declines are often the norm.
Bearing that reality in mind and in reviewing LI stock’s weekly chart, erring on the side of caution with today’s 20% correction, is warranted.
Specifically and of concern, a confirmed weekly topping candle set against LI’s 62% retracement level, trendline failure and bearishly overbought stochastics hints at better buying opportunities down the road.
For now, I’d strongly advise waiting for deeper value to emerge and pattern and secondary confirmation in place before making a LI stock purchase. At a minimum, time is going to be needed to square up Li’s price chart.
Bottom-line though, if LI investors simply can’t resist the urge to buy on weakness, a collar or bullish vertical strategy can help avoid looking like a crash test dummy in a stock at increased risk of a larger bearish cycle.
On the date of publication, Chris Tyler does not hold (either directly or indirectly) positions in any 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.