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The setting for QuantumScape’s (NYSE:QS) success is as good as it gets. It has a home in the environmental, social and governance (ESG) investment theme, which is growing in popularity. Also, the electric vehicle is making a bid for supremacy in the future of propulsion. Therefore, demand for battery solutions will likely remain this strong for a while. Yet, QS stock is failing on so many levels.

Today we will make the point that investors are either in it to win it, or are simply trading around the action. This year proved to us that shorting momentum stocks is hazardous to one’s financial health. Even so-called smart money pros went broke doing it.

Last year QS surged 900% toward the end of the year, probably in anticipation of a friendlier U.S. administration. Unfortunately for the bulls, it fell even faster. They tried to hang around the $50 level but that too failed in April. QS stock has fallen in a lower-high trend all year long. I warned about this outcome in January, that if they lost $47 they would target $30.

At the time, my conclusion was that neither bulls nor bears should be confident. I still feel that way, so the trade setups from here should carry the speculative label. Meaning I can’t be too aggressive in size, and I would avoid adding to bullish positions.

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Two weeks ago, it hit a bottom at $19 per share. That is the only technical positive spin on its current situation. The bulls are trying to base there for some sorts of a comeback rally. If the stock falls below it then it continues to be a falling knife. A warning sign would be if it falls below $20.3 first.

QS Stock Is Tight so a Move Is Coming

Investors who believe in the QuantumScape mission are likely still steadfast. I, on the other hand, still don’t share their enthusiasm. The solid state application is not likely realistic for EVs in a real-life global environment.

Of course, if they do it, then they will hold the key to the holy grail of battery solutions. I am by no means an expert on battery tech, so do your due diligence on that.

The Trade in QS Stock

So far I’ve been pretty bearish about the fundamental thesis. But now I will argue for the technical trading opportunity. If QS stock can break out from the $22 range, it could slingshot to $24 per share. More importantly, shares could snap out of this year-long bearish channel.

This is all contingent on the bulls maintaining the higher-low progress from two weeks ago. Otherwise, the bears are still in charge and it would be targeting another 15% drop. If that happens it would have completely priced out the rally from last November.

I know there are readers who will hate this part, but that’s how normal price action happens. That’s why they say to not fight the tape. The pattern has not changed for weeks. I pointed that out late July. I even drew lines that needed to hold.

They failed and now the bounces are mere efforts to recover those ledges from a month ago.

Regardless of which way they go, the move should be big. The price range has now tightened into a very narrow spot. This means that the QS chart has gathered a lot of energy that needs to dissipate. Therefore I predict a big move, though the direction is still a mystery. I will renew my lines today for the new trading range.

Taking on new positions now means taking a binary bet on that outcome. I would use the options markets for it. There, the out-of-pocket expense can be much smaller than buying shares. Also the results can be much bigger in percentage terms. Using options in essence allow investors to risk less to make more.

On the date of publication, Nicolas Chahine 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.

Nicolas Chahine is the managing director of SellSpreads.com.

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