Lucid Motors (NASDAQ:LCID) and a number of other EV stocks have performed really poorly lately. Sept. 1 was not a good day for LCID stock, which closed lower more than 10% on the day.
However, at the session low, Lucid Motors stock was down almost 20%. Even though it was bid up notably from the lows, it sure was a painful run. That was the stock’s sixth straight daily decline and 14th down day in the prior 15 sessions. Ouch.
Despite the painful run though, we were able to sniff out an aggressive yet low-risk long opportunity. When the stock opened below the $17.62 level but reclaimed it, that was a sign that we had a potential washout in the stock.
Then, in the span of just a few weeks, we had a rally all the way back up to the $28 to $30 area, which continues to act as resistance.
After nailing that setup, does the chart have any more clues?
Trading LCID Stock
When looking at a setup like LCID stock, many investors would consider buying the dip in this name to be a high-risk situation. But that’s not the case when it comes to using key levels with solid entry points.
While I consider Lucid Motors a high-risk stock overall, I didn’t consider our entry to be the same. That’s because by reclaiming the $17.62 level, we were able to go long at that point, and put a stop-loss just below the session low, which was at $16.12.
Incidentally, that was also the opening price, which told us bulls stepped in right off the opening bell and bid this name higher by about $1.50 a share. With a stop-loss at $16, we knew we could risk just $1.62 a share on this trade. While that would represent a 9% loss on the trade had LCID stock moved lower, a smaller position size would further reduce the impact to our account.
So what about the setup now?
We had a falling wedge setup in LCID stock, which broke out and up off the 50-day moving average. With the move, shares are trying to reclaim the 200-day moving average as well.
If the stock can clear $24.22 (last week’s high) and the 21-day moving average, we could see another move above $25. Above $25 opens the door back to resistance in the $28 to $30 range.
On the downside, keep an eye on $22.11. A break of this level is not good for the short-term trend and could put $20 or lower on the table.
Breaking Down Lucid Motors Stock
The situation with Lucid has been all over the map. In August, the company impressed MotorTrend with its upcoming vehicle—the Air Dream Edition—as they said it’s “absolutely” a threat to Tesla (NASDAQ:TSLA) and others.
However, that news came amid Lucid’s gnarly downtrend and did little to help the stock. Shares plunged a few days later after its PIPE lockup. Arguably, we should have known that was a buying opportunity, just based on the news.
When news hit that one of Lucid’s models would top 500 miles per charge, that gave a positive shock to the stock price. More optimism has juiced the stock with production beginning and the outlook looking strong from a demand point of view.
I love the news around Lucid and its vehicles, and it’s great to see another EV company making big-time strides. My problem with LCID stock though? It trades with a $39 billion valuation.
The company is forecast to do less than $100 million in sales this year, which is no surprise and I don’t hold it against the valuation. In 2022, estimates call for $1.7 billion in sales, a big improvement. 2023 estimates call for more than $4 billion in sales.
I’m all for it. But that leaves LCID stock trading at about 10 times 2023 revenue estimates—and remember, those are just estimates. While Lucid could exceed those expectations, they could also come up short too.
The Bottom Line on LCID Stock
At this point, I’m leaning more on the technicals than the fundamentals here. While I’m not saying Lucid is a bad company by any stretch, it’s really hard to justify this type of market cap while looking for meaningful upside in the stock price.
At $30 a share, we’re talking about a market cap of almost $50 billion.
For comparison, Ford (NYSE:F) stock has been on a massive run lately and has a $61 billion market cap. That’s despite being profitable, forecasts for $127 billion in sales this year, forecasts for double-digit revenue growth in 2021 and 2022, and its own impressive EV plan.
While I’m not saying “Don’t buy LCID stock,” I’m not a full-blown bull either. Let the technicals guide you on this one.
On the date of publication, Bret Kenwell 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.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.