Nikola (NKLA) Buyers Trapped in Overnight Reversal

Nikola Corporation (NKLA) inventory modified into as soon as as a lot as its feeble suggestions overnight, losing extra than 15% after Tuesday’s 17% rally lifted the controversial hydrogen automobile producer to a two-month high. The inventory had rallied practically 100% between Nov. 10 and final evening’s closing bell, joining a torrid reach all across the electric automobile (EV) assign. Even so, the inventory is light procuring and selling extra than 60 facets under June’s blow-off high, which took place magnificent after the Phoenix-based fully company done an acquisition and took the “NKLA” ticker.

Key Takeaways

  • Nikola inventory has exhibited monstrous volatility since June, with violent rallies and selloffs.
  • The inventory reversed overnight, catching Monday traders in a bull lure.
  • Trace action has regained some broken technical phases, rising the percentages for a rally to $50.
  • General Motors Firm (GM) has the answer to toddle far from a highly touted partnership subsequent week.

Nikola inventory dropped treasure a rock in June after Citron Study posted a cautious represent and plummeted as soon as extra precise two weeks after completing a 54 million-share secondary offering. Questions arose at that point a couple of December 2016 presentation that made allegedly exaggerated claims about the Nikola One prototype truck, with a video that comprises an inoperable automobile with lacking ingredients, indicating that it by no draw drove under its like energy.

The selloff picked up momentum in July after the corporate filed for a sale of as a lot as a quarter billion shares by “definite promoting shareholders,” losing extra than 20% in a single session. A one-day surprise rally erupted after the announcement of a strategic partnership with General Motors in September, swiftly extinguished when the SEC opened an investigation into fraud allegations. Chairman and founder Trevor Milton modified into as soon as forced to resign two weeks later, adding to a melodrama that precise would possibly per chance well no longer discontinuance.

GM took a broad step motivate from the rising partnership after the whirlwind but is continuing discussions. Nevertheless, Nikola CEO Ticket Russell prompted an overnight selloff when he informed CNBC that every person aspects can “toddle away” if a deal is no longer done by subsequent week. It is far no longer determined today what’s going to happen subsequent, given shaken investor self belief, but that is no longer going to pause traders from playing the violent and potentially winning sign swings.

A blow-off high is a chart pattern that reveals a steep and swiftly prolong in a safety’s sign and procuring and selling volume adopted by a steep and swiftly plunge in sign on the final on predominant or high volume as effectively. The swiftly modifications indicated by a blow-off high, also called a blow-off switch or exhaustion switch, would possibly per chance be the outcomes of staunch files or pure speculation.

Nikola Each day Chart (2020)

The inventory rallied into the mid-$30s in Could per chance per chance fair and pulled motivate, settling at give a increase to in the low $20s one week later. It returned to the high in June and broke out, entering a momentum-fueled reach that added practically 60 facets in barely two sessions. It then fell 40 facets in three sessions, highlighting monstrous volatility that has persisted by draw of the fourth quarter. Initial give a increase to in the low $50s held into a July downdraft that also done a double high breakdown.

Trace action settled in the upper $20s on the open of August, yielding a modest uptick that culminated with the GM files in September. Nikola inventory failed give a increase to on the 50-day exponential appealing common (EMA) at that point, before persisted design back that relinquished about 90% of the total upside into gradual September. It tested the low about two weeks ago and changed into sharply elevated, remounting the broken .786 Fibonacci rally retracement stage on Monday.

The on-balance volume (OBV) accumulation-distribution indicator displays a potent aggregate of backside fishing and short promoting, lifting to an all-time high this week. Trace action has also remounted the broken 50- and 200-day EMAs, organising unique give a increase to that is getting tested on Wednesday morning. One other decline by draw of the mid-$20s would be extremely bearish in this wretchedness, organising the possible of designate unique lows. Nevertheless, procuring cycles are realigning as soon as extra, with possible upside into the September peak shut to $50.

A bull lure is a inaccurate signal, referring to a declining increase in a inventory, index, or completely different safety that reverses after a convincing rally and breaks a outdated give a increase to stage. The switch “traps” traders or traders that acted on the utilize signal and generates losses on ensuing long positions. 

The Bottom Line

Nikola inventory has reversed violently in a normal bull lure after lifting to a two-month high on Tuesday.

Disclosure: The creator held no positions in the aforementioned securities on the time of e-newsletter.

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