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Nikola Corporation (NKLA) stock lived up to its old tricks overnight, falling more than 15% after Tuesday’s 17% rally took the controversial hydrogen vehicle maker to a higher high for two months. The title had risen nearly 100% between Nov. 10 and last night’s closing bell, joining a scorching lead across the electric vehicle (EV) space. Even so, the stock is still trading more than 60 points below the June high, which occurred just after the Phoenix-based company completed an acquisition and took the symbol “NKLA”.
Key points to remember
- Nikola stock has shown extreme volatility since June, with strong rallies and sells.
- The stock reversed overnight, catching Monday buyers in a bull trap.
- Price action has returned to broken technical levels, increasing the odds of a rally to $ 50.
- General Motors Company (GM) has the option to withdraw from a much-vaunted partnership next week.
Nikola’s stock fell like a rock in June after Citron Research released a cautious report and fell again just two weeks after completing a secondary offering of 54 million shares. Questions arose at that time about a December 2016 presentation that made allegedly exaggerated claims about the Nikola One prototype truck, with a video showing an unusable vehicle with missing components, indicating that it was not never drove on her own.
The sale gained momentum in July after the company filed for a sale of up to a quarter of a billion shares by “certain selling shareholders”, losing more than 20% in a single sitting. A one-day miracle rally erupted after the announcement of a strategic partnership with General Motors in September, which was quickly extinguished when the SEC opened an investigation into allegations of fraud. President and founder Trevor Milton was forced to resign two weeks later, adding to a melodrama that simply won’t end.
GM took a giant leap from the developing partnership after the whirlwind, but is continuing discussions. However, Nikola CEO Mark Russell sparked an overnight sale when he told CNBC the two sides can “walk away” if a deal is not reached next week. It is not known at this time what will happen next, given the shaken investor confidence, but that will not prevent traders from playing on the violent and potentially profitable price swings.
A blowing top is a graphical diagram that shows a rapid and steep rise in the price and trading volume of a security, followed by a steep and rapid fall in the price, usually also on a large or high volume. The rapid changes indicated by a blowing top, also referred to as a blowing motion or exhaustion motion, may be the result of actual news or pure speculation.
Nikola daily chart (2020)
The stock rebounded to mid-$ 30 in May and pulled back, settling in support in the lower $ 20 a week later. It came back to its highest in June and erupted, starting a momentum-fueled lead that added nearly 60 points in just two sessions. It then fell 40 points in three sessions, highlighting the extreme volatility that continued into the fourth quarter. Initial support in the low $ 50 held steady in a July downtrend which also completed a double top breakdown.
Price action stabilized in the upper $ 20 in early August, pushing up slightly that peaked with the GM news in September. Nikola stock failed 50-day exponential moving average (EMA) support at that point, before the decline continued that gave up around 90% of the total rise at the end of September. It tested the low about two weeks ago and turned significantly higher, moving up the broken Fibonacci rally retracement level of .786 on Monday.
The On-Sale Volume Accumulation-Distribution (OBV) indicator reveals a powerful combination of bottom fishing and short selling, hitting an all-time high this week. Price action also moved up the broken 50 and 200 day EMAs, establishing new support which is being tested on Wednesday morning. Another decline in the mid-1920s would be extremely bearish in this scenario, paving the way for new lows. However, the buying cycles are realigning once again, with upside potential to the September high near $ 50.
A bull trap is a false signal, referring to a downtrend of a stock, index or other security that reverses after a convincing rally and breaks an earlier support level. The movement “traps” traders or investors who acted on the buy signal and generates losses on the resulting long positions.
The bottom line
Nikola stock reversed violently in a classic bull trap after hitting a two-month high on Tuesday.
Disclosure: The author did not hold any position in the above titles at the time of publication.
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