- Rivian (RIVN) bucks market selloff despite bearish analyst call.
- Rollout of popular and well-reviewed R1T, solid pre-orders and last week’s production update benefit Rivian investors.
- RIVN stock isn’t without larger risks, but this bullish strategy can help profit from volatility.
Inflating bond yields and interest rate fears. A war in Ukraine with no end in sight and Covid-19 manufacturing closures in Shanghai wreaking havoc on electric vehicle giant Tesla (NASDAQ:TSLA) were major hazards the tech-heavy Nasdaq was unable to navigate through Monday. But not Rivian Automotive (NASDAQ:RIVN), as RIVN stock gained a market-bucking 1.80%.
Rivian shares rallied in the face of an “underperform” initiation and below-the-market price target of $35 from BNP Paribas. Yet the seemingly odd RIVN stock action and broker-defying bid isn’t actually all that mysterious.
Despite the cautious note, the broker called Rivian “a serious brand with true staying power.” Also, there’s a chance Tesla’s challenges overseas could adversely impact its competing truck and benefit Rivian’s R1T pickup.
Lastly, the broker’s downside target was just 10% beneath Friday’s close. Following a massive 78% slide in share price since November, the call may have had the opposite effect of allowing investors to sense a nearby floor.
And as we’ll explain below, there’s other evidence off and on the price chart suggesting RIVN’s bid will have “true staying power” as well.
RIVN Stock Looks Good Under the Hood
Strong first quarter delivery results this past week may have left some investors confounded. Shares floundered despite Rivian announcing it produced 2,553 EVs, gave the keys to 1,227 customers and is confident it will be able to deliver on full-year production guidance of 25,000 vehicles provided last month.
To be fair, the update did follow a larger downward revision during its fourth quarter earnings call. Also, investors may have been cautious too with the market coming under pressure last week and feeling less forgiving about numerous supply chain problems and larger losses.
Furthermore, other EV pickup competition from Ford (NYSE:F) and General Motors (NYSE:GM) and a longer-term challenge for Amazon’s (NASDAQ:AMZN) business after the tech giant announced another EV partnership in January may have all swayed investors to sell RIVN stock.
But the fact remains, Rivian is also the first automaker with its R1T pickup on the market. The EV has also won the prestigious 2022 Truck of the Year from Motor Trend and is winning high praise from its customers.
With R1 pre-orders totaling 83,000 as of March and Amazon’s initial order for 100,000 electric delivery trucks still a part of the RIVN stock’s financial calculus for the next few years, Monday’s odd-looking broker greeting makes increased sense.
Rivian’s Buyable Bottom
Source: Charts by TradingView
Wall Street lore warns about reading into any one day’s price action as trends changing. But all trends do start from somewhere. And one of the stronger price patterns that has marked countless lows as a bear market transitions into a bull market is the double bottom.
And today, a bullish higher-low variation is setting up nicely in RIVN stock for buyers.
With Monday’s modest but critical gain, shares of Rivian formed a bullish higher volume, engulfing candlestick around the 76% retracement level tied to last month’s post-earnings reaction which took RIVN to new lows.
Importantly, since forming the all-time-low Rivian has also bullishly broken above a third downtrend line. Thus Monday’s candle, should it be confirmed as a second pivot low for the double bottom, has one less layer of bearish resistance to struggle with.
In fact, rather than being worried over bearish drags, coupled with an oversold stochastics that’s bullishly poised to cross over, Monday’s price action sets up nicely as a second higher low for an emerging uptrend.
Ultimately, assigning too much value to a single session is generally a bad idea. But RIVN’s daily chart is making the case that buyers should be upbeat that a pattern low and rally are in the works and worth buying.
How to Approach RIVN Stock Today
As far as an initial upside objective, last month’s high of $56.76 is reasonable if the double bottom is going to work. And given RIVN stock’s steeper price volatility, a rally of that magnitude could occur inside of the next month.
But, unlike Monday, Rivian shares are going to need a more cooperative market environment or risk the distinct possibility of new lows if bearish sentiment continues to pressure the market’s confirmed rally.
Given RIVN stock’s history of significant share movement, both up or down, but favoring a bullish bias, an actively managed collar might be considered. This type of fully hedged position profits from rallies similar to a bull call spread.
Where the collar is more interesting is the adjustments to the long put, short call and long stock. When Rivian’s price swings wildly up and down, the net result can be the realization of profits when other bullish investors are struggling with losses.
Today, one RIVN stock collar to start that kind of campaign is the May $35/$50 combination priced for $40.70 or a $1.20 premium over the Rivian share price of $39.50.
On the date of publication, Chris Tyler 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.
