Equity markets remain bullish, so speculative stocks have a good chance for success. Today we will contemplate what’s ailing Churchill Capital Corp (NYSE:CCIV) stock since it has lost its mojo. In the last 41 days, CCIV stock is down more than 60%.
This is the company that brought Lucid Motors public through a special purpose acquisition company, or SPAC. CCIV stock did well then fell on hard times. There could be a road to recovery. Let’s examine the important factors.
First, the macro-economic conditions will matter. Recently, the rhetoric tried to stir up an uproar over a slew of stock market worries. These included fear over the Fed’s tapering and mega-block trades from Goldman Sachs. There was even chatter of runaway yields and rising dollar.
The fear mongers were out in full force, yet the S&P 500 made new highs 36 hours ago. The headlines often forget to mention those simple facts, like looking at the scoreboard.
We have the strongest, most aggressive Federal Reserve and $3.3 trillion in government infusion into the economy. The Fed is doing $1.44 trillion and the White House released the $1.9 trillion stimulus.
In summary, the environment is conducive for upside potential in healthy electric vehicle stocks. Next we look at the specific opportunity for Lucid Motors.
CCIV Stock Is a Better Trade
CCIV stock is now 28% cheaper than March 1 when I wrote an article about it. Back then I did not favor owning it unless selling Dec $15 puts. And that trade remains viable and profitable. I was right to avoid owning the shares because those are down one-third. Today we reassess the premise and the situation for the next few months.
The EV market is still hotter than ever. This is the most legitimate threat to the internal combustion engine ever. Most auto manufacturers have already committed to switching to non-fossil fuels and soon. This includes General Motors (NYSE:GM) and Ford (NYSE:F). Tesla (NASDAQ:TSLA) did all the hard work that was necessary to establish this trend. The rest of them now get to enjoy an easier path to market.
Hundreds of companies are trying to establish their footprint, but most will fail. There are a few standouts already, like Nio (NYSE:NIO), and those will be the ones I would buy into first. The reasoning being is that they have fewer question marks, so they are smaller gambles.
Lucid Motors Is a Niche Opportunity
In this case, Lucid Motors is swimming upstream. Their cars are so expensive that they target the 1 percenters. Therefore, by definition, it’s a niche market not likely to hit mass potential. From that perspective, those buying the stock now must know something not already obvious for me to see.
The investment decision that I made 30 days ago to pass on this opportunity remains unchanged. This is not an attractive investment to me still. However, from a trading perspective, CCIV stock has the potential of setting a base just above $20 per share. This painful correction could be coming to an end. I would use $20 as my stop loss though so not to ride it down another stent.
When a stock falls into a prior base, it tends to find support. The danger would be to lose it and then it becomes a trigger for much lower prices. Not to upset the readers, but if that happens, then CCIV stock could lose another $5 from there. I’ve issued similar warnings on Hyliion (NYSE:HYLN) and its fans let me have it. But once it lost support at $18, the stock triggered a big bear.
Hopefully CCIV doesn’t suffer the same fate because there is still time. But just in case, if I were long and suffering, I don’t add. This is not a call to short Lucid Motors. Averaging down only makes sense when there are actual fundamentals. Currently the stock has nothing but the hope of future successes. My goal is to scare people a little so to infuse a healthy dose of doubt into their resolve.
To summarize, I would trade it for the bounce but with an immediately tight stop out of it. The idea is that I do not want to know what lies below $20 per share. A lot of responsibility falls on management to show progress and offer clear milestones. The more tangible targets and goals they offer investors, the bigger their conviction. “Show me the money” or in this case, tangible results, and I would be a better believer.
The opportunity in Lucid is not for me again except for a scalp on a trade with a tight stop.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.