The price action on Wall Street last week ended in the horrific day. After the Thanksgiving festivities, investors woke up to a legitimately bearish outcome. While people were away the machine trading systems did their thing. The small-caps fell more than 5% in mere hours. So it’s not a surprise to see a young one like Rivian Automotive (NASDAQ:RIVN) stock fall 2.4%.
Therein lies some good news that it closed off the lows of the day. This is more than what the indices can say because they all closed almost at their weakest points. This morning it is also recovering about a percent to start the day.
The conclusion today for RIVN is that it has a good long-term outlook. Meanwhile, investors will need to sit through many more rough patches like this.
The Friday price action in RIVN stock had technical nuances that should leave the bulls with hope. The last three times the stock fell into $108 per share, it quickly recovered. This shows the willingness of the fans to step up to the plate below its current price.
While that doesn’t make it a concrete floor, it is temporary support.
RIVN Stock Has Long-Term Opportunities
If the stock market in general recovers its footing, then RIVN stock bulls can have a rally of their own. So far my comments have been for the short-term stock price action. Longer term, I favor electric vehicle companies that currently already have a growing business. Admittedly, the startups like this one, Fisker (NYSE:FSR) and Lucid (NASDAQ:LCID) do present a long-term viable thesis.
But investors need to know that much of the stock price depends on future expectations rather than current facts. I’ve seen Rivian vehicles on the street in my neighborhood and they are impressive. They demand attention in an intersection, so I suspect they will be popular once at full capacity. In the long term there is little doubt that the company will be successful.
I am not the only one thinking this because Amazon (NASDAQ:AMZN) is an investor in it already. In fact, the company also added to its positions at the IPO prices. Clearly it knows the business more than me and I can leverage their due diligence.
As for the piece of the electric vehicle pie, Rivian will have its fair share. It all comes down to the company’s throughput and follow through. It’s up to management to prove to Wall Street that they deserve the benefit of the doubt. For this to happen, time has to pass because this is its first quarter as a public company.
Current Support Needs to Hold
Back to the technical aspects of the price action, the support around $108 per share needs to hold. Otherwise, the bears could trigger a bearish pattern to retest the lows or make new ones. Eventually, the bulls will have to contend with the resistance near $124 per share and higher. There are also several areas of contention that will be problems on the way back up.
Since we are still in a pandemic, investors should consider leaving room for error. The world is still learning about a new version of Covid-19, so there could be fresh wrinkles. This makes it imperative that we don’t take full-size position all at once. No one should have that much conviction regardless of how good the opportunity looks in that particular stock.
I’m confident that RIVN is on a path to success. I am not as sure that this would be the absolute base for the long-term upside potential. Consider a scenario where the markets corrects 10%, I doubt that RIVN stock will hold its current lows. Stocks do not trade in a vacuum, so they will need the cooperation of the collective.
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.