Avoid Lucid After Earnings Failed to Save Its Sinking Shares

  • Lucid (LCID) sank to a 52-week low on Tuesday, falling for its fourth session in a row.
  • Last week’s earnings report proved unable to pull LCID stock out of its tailspin.
  • Until the sentiment surrounding unprofitable startups and other high-risk stocks changes, don’t buy Lucid.
Lucid Motors (LCID) Air Dream Edition Luxury Electric car and it's technology on display in Lucid (LCID) Studio Showroom

Source: Around the World Photos / Shutterstock.com

Lucid (NASDAQ:LCID) fell for a fourth day Tuesday even as a relief rally carried the Nasdaq 1.2% higher. Unfortunately, the relative weakness is nothing new. LCID stock has been a sinking ship for six months straight. Sure, we’ve seen a few rebound attempts, but each proved feeble and fleeting.

As I’ll shortly show, the fundamentals, technicals and sentiment are all flashing warning signs for the electric vehicle (EV) maker. And that makes it easy to recommend you steer clear of the stock for now.

If you want to simplify the current state of Lucid’s fundamentals, view them through the lens of the last two quarterly reports. The company posted losses both times, and investors rang the cash register.

On a positive note, LCID stock avoided any epic down gaps at a time when some companies have been destroyed after disappointing on earnings. Regardless of the actual numbers or how the company spun the current environment, Wall Street left the events unimpressed and uninspired to acquire shares.

LCID Lucid $15.80

Lucid’s Toxic Technicals

As a fan and follower of technical analysis, I find the LCID stock chart straightforward. There are no mixed messages or crosscurrents to wade through. Price is trending lower beneath all major moving averages.

Ever since the failed bounce that kicked off the new year, Lucid has been cruising lower while carving out lower highs and lower lows. The descent’s depth and magnitude have been severe enough to turn even the 200-day moving average lower.

Lucid (LCID) stock chart with steep downtrend and major support break.

Source: The thinkorswim® platform from TD Ameritrade

And it’s not like the momentum is giving bulls any hope. The relative strength index (RSI) Indicator is scraping the bottom near 30 and confirms the strength behind the past two downswings.

Worse yet, prices just sank to their lowest levels since Lucid went public through its merger with special purpose acquisition company (SPAC) Churchill Capital Corp IV in July 2021. There have only been three trading sessions that have seen the stock trade lower than here. Said another way, nearly every investor who acquired LCID shares after its debut is losing money.

We’ve seen nary a whiff of accumulation on the volume front in six weeks. Meanwhile, distribution days multiplied before and after last week’s earnings report. Throw it all together, and I can’t find a single reason on the chart to support buying LCID stock.

Souring Sentiment for LCID Stock

In fairness to Lucid, its troubles aren’t all self-inflicted. The backdrop for all speculative issues — including recent initial public offerings (IPOs), SPACS, unprofitable companies and high beta growth stocks — couldn’t be worse. Inflation is proving sticky after the pandemic, and the Fed has embarked on an aggressive rate hiking campaign to destroy it.

There have been and will likely continue to be casualties. The rising cost of capital is causing investors to favor profitable companies with expansive balance sheets and loads of free cash flow. With higher rates, future profits are no longer worth as much as they once were.

Lucid belongs to a cohort of non-profitable tech companies. Goldman Sachs (NYSE:GS) created an index to track the performance of these types of tickers, and it currently finds itself 68% off the highs. This is its largest drawdown ever.

Every day it seems another stock blows up after disappointing earnings. Unity Software (NASDAQ:U) and Coinbase (NASDAQ:COIN) are the latest victims, falling 28% and 15% after the bell on Tuesday.

In sum, resist the urge to catch Lucid’s falling knife. The odds of you nailing the bottom are slim, and there’s simply insufficient evidence to suggest it’s worth attempting right now anyway.

On the date of publication, 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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