Lucid Group (NASDAQ:LCID) stock just escaped what could have been a nasty breakdown. In doing so, the red-hot electric vehicle stock maintained the bullish tilt of its price chart while completing what could be a lucrative buy-the-dip setup.
If not for the uncertain broad market backdrop, I might give LCID stock my hearty endorsement. But Wednesday’s whack to risk assets warrants caution. And that makes me less enthusiastic about the chances for a quick jump higher.
That said, Lucid’s sharp rebound on Thursday is worth discussion. From the intraday low of $33.76, prices boomeranged back over 13% to close at $38.22. At first blush, I’d expect such a rousing rebound to be a unique occurrence.
But then, LCID isn’t exactly an ordinary stock. Since the beginning, both hype and volatility have accompanied its steps. Day trading degenerates, momentum chasers and starry-eyed optimists hijacked the electric vehicle movement and have been driving prices wildly up and down for over a year.
As for Lucid stock, its daily trading range, as measured by the average true range (ATR) indicator, grew to $5 late last year. It has since settled down to $3.57, which is still monstrous for a $38 stock. It translates into average moves of 9.4%, making Thursday’s 13% intraday range a bit less extraordinary.
The final point on this volatility commentary is that LCID is not a stock for the faint of heart.
LCID Stock Charts
Recall the purpose of analyzing the larger time frame of a price chart is to offer a clearer view of the trend and longer-term support/resistance zones. The insanity of Lucid’s price chart looks less so on the weekly view. It exploded higher at the outset of 2021, rising six-fold over two months in a feat reminiscent of the glory had by meme stocks like Gamestop (NYSE:GME) and AMC Entertainment Holdings (NYSE:AMC).
When the buying fever finally broke, prices careened back to earth and settled into a trading range until the next breakout arrived in late October. This time bulls only succeeded in doubling the price before a pullback came. For now, the downward pressure has eased, and support is forming at the rising 20-week moving average and horizontal support at $35.50. Climbing above this week’s high ($41.76) would signal the next upswing for the weekly trend has begun.
Turning to the daily chart reveals just how far the recent retracement traveled. We broke below both the 20-day and 50-day moving averages. But, importantly, we still sit below them. So while the descent has slowed and a floor has been found, we haven’t seen any lift-off to confirm a new advance.
Thursday ended with a hammer candle, showing buyers’ success in preventing a support break. The cautious trader should await more evidence before buying the dip, though. I reiterate using this week’s high as the ideal trigger. I’ve highlighted it in the chart.
Two ways to Play
Directional traders could keep it simple by purchasing shares if prices exceed $41.76. Then, use the old resistance pivot of $57.75 as the upside target. On the other hand, if you want to enhance your probability of profit and are willing to lower the potential payout, then the high implied volatility works to the advantage of options selling strategies.
For instance, you could sell put options to wager prices won’t fall too much further over the next month.
Naked Put Trade: Sell the February $25 put for 65 cents.
If the stock sits above $25 at expiration, you’ll capture $65 per contract. By selling the put, you obligate yourself to buy shares if prices fall below $25. That’s the risk.
Tyler Craig 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.
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