Yesterday the electric vehicle trade was in full swing. Lucid (NASDAQ:LCID) spiked 31%. Then, out of nowhere, Fisker (NYSE:FSR) climbed 13%. Maybe Tesla’s (NASDAQ:TSLA) recent rally into all-time highs rekindled the investor love for EVs. Nevertheless these are hot stocks. Today we look at the opportunity in FSR stock.
But first, a warning: Chasing massive spikes like this usually only works for momentum traders in the short term. Most other investors who chase these spikes risk a sub-optimal start to their position.
Now let’s talk about the fundamentals behind FSR stock. Spoiler alert: They don’t have any yet.
The majority of Fisker’s stock price is currently from expectations of what is to follow. The company is working on bringing to market a slick fleet of vehicles under the label “Ocean.” When a company does not currently have an income stream, the stock is speculative. I don’t say that as an insult toward FSR — it’s just a fact.
With that out of the way, let’s take a deeper look at what you might expect from FSR stock moving forward.
Owning FSR Stock Isn’t a Bad Idea
As stated above, there are risks to investing in Fisker. However, this doesn’t mean owning FSR stock is a horrible idea. It’s just that investors who are in it for the long haul need to remind themselves to remain patient.
From a trading perspective, the latest spike in Fisker shares brings them into a massive failure level from August. The first challenge here is the $17 per share mark. The candle from Aug. 10 is the next beast to conquer. After a spike like this, the short-term odds of more upside are less obvious.
I am honest about the technical opportunities when I see them. For example, in May I shared a bullish setup that delivered big profits. If you are already long, you can wait it out. But even so, it would be wise to trim some profits. Remember, I’m coming from the perspective of a trader here versus someone who simply is holding the stock forever.
The trader in me says to wait until it breaks out from $20 per share. Then chase it. That rally could extend and test the all-time high. It would be a tall order for this to happen so quickly. However, it’s not impossible. Either way, I am willing to see it rally without diving in.
It might sound like I’m talking both sides of the trade. But, truthfully, I’m just discussing two different approaches and time frames.
Long term, there is a viable case to hold Fisker stock with patience. Meanwhile, in the short term, it should face resistance soon. Therefore, now, after this latest spike, is not an obvious point of entry. That’s especially true since prior failing zones are likely to present short-term resistance.
Management Is on Deck
It is important to keep tabs on production schedules and updates from the company. This puts the fate of the FSR stock in the hands of management, old school style. This is where the company can reward its fans by actually delivering on timeline promises. Sentiment is the only price driver until it develops a stream of sales. Therefore, upsetting shareholders will likely result in harsh selling of the stock.
The EV market is extremely competitive, and these newer companies are at a severe disadvantage. They all present fantastic concepts and incredible tech. However, the incumbents are strong and they all carry tremendous momentum. Looking for evidence? Just take a look at what’s going on with Tesla, Nio (NYSE:NIO) and even Volkswagen (OTCMKTS:VWAGY). Ford (NYSE:F) is also joining the fight.
The easy, low-lying fruit is disappearing quickly.
With that said, it’s wise to keep your enthusiasm in check. It’s also important to resist the temptation from averaging down on bad days. It’s okay to take a risk on speculative stocks, but it is not safe to increase the size.
Nothing I have written here should suggest that I am pessimistic on Fisker’s outlook. The opportunity here merely requires cautious optimism … cliché as that may be to say.
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.
