For the first time in decades, the internal combustion engine (ICE) has a real threat on its hand. The electric vehicle (EV) is the leading candidate to replace ICE. As a result, a slew of new companies are trying to make a go of it. Fisker (NYSE:FSR) is a familiar name and one of the future contenders. The “future” term is key to the bullish thesis to FSR stock.
At this point it’s almost a certainty that ICE will not be propelling our future machines. All major auto manufacturers have committed to getting off fossil fuel within a decade.
It will take a long time to completely switch everything, but it’s happening.
Fisker currently remains without a revenue stream. They are bringing a new line of slick EVs under the Ocean mark. This is Mr. Fisker’s second attempt at this. The first one failed in 2012, which was sad since I loved the Karma.
This time they have a better setting for success. Since their first effort, the world has accepted the EV thanks to Tesla (NASDAQ:TSLA).
Sentiment Is Fickle and Patience Is Key
FSR stock has seen better days. The reaction to its earnings report was jubilation a few days ago, but it didn’t last. Yesterday, the stock collapsed 17% bringing it back to its recent base. Where it goes from here will depend on sentiment more than metrics. Fisker is still pre-revenue therefore there aren’t any values to help support the stock price action.
Usually when a stock falls, investors use tangible metrics to assess value. That’s how they decide to buy the dip, or not. In this case the entire stock price is from expectations of future successes.
Therefore, we need something extra to help with the decision. I rely on the information in the charts for that. They offer honest guides short term. Longer term, those who believe in the company need not worry about these headlines. They should just own it if they love it.
But for the rest of us who would rather put a little thought into entry levels, we can get fancy. The modern investors have all the tools they need to avoid obvious mistakes.
Chasing FSR stock into $20 per share was not a clear point of entry. Because it had just failed there late June. The better entry is to chase it after it breaks through resistance. Conversely panicking out of it as it falls into $14 per share is also wrong and for the same reason. This was a recent base and until it fails I would assume it holds.
FSR Stock Can Shine Again
It is important to not let emotions get in the way of success. I am not a big fan of Fisker. I am also not one to buy and hope for upside. That doesn’t stop me from trading it positively. I shared bullish articles on Jan. 19 and May 12. They both delivered big profits.
The stock continues to offer solid trading opportunities especially at extremes. Investors have a bad habit of overdoing things in both directions. These create openings for the cooler heads that usually prevail.
FSR stock is now near levels that make sense for the bulls.
If the stock market in general holds up, initiating bullish positions in Fisker should do well into early next year. This qualifier is a biggie in my book. At these altitudes, the threat from the indices is very real. If $14 per share fails, I expect more downside to happen.
It is important to stay realistic with expectation regardless of fandom. The worst case scenario of $10 has already happened twice in the last 10 months. There are no guarantees it won’t happen again.
To be ready, investors should not go all in. Leaving some room to manage the trade makes sense. I don’t like to average down but I can reduce the initial entry size. This leaves me the opportunity to add more at lower prices and still retain the same size risk.
These are uncertain times and there are no guarantees. The Federal Reserve is about to announce the start of its taper process. We don’t know how Wall Street will take the news.
Good stock opportunities can fail through no fault of their own. All stocks have to trade inside the collective that is the entire market. So far, the bulls have been a complete control with no signs of let up.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.