You Should Keep Questioning Lucid Motors’ Outperformance

InvestorPlace ·  04/13/2022 00:46

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  • Lucid Motors (LCID) bulls look toward industry tailwinds and a technical bottom forming.
  • Downward production guidance and bearish market overtures could weigh strongly on LCID stock.
  • Lucid shares pose greater risks to bulls and bears right now.
Source: gg5795 /

EV luxury play Lucid Motors (NASDAQ:LCID) saw its shares hold up better than most in Monday's market selloff thanks to a broker call and challenges at rival Tesla (NASDAQ:TSLA). By the closing bell, LCID stock clung to a narrow gain of 0.14% compared to the Nasdaq's steeper slide of 2.18%.

Behind the bid, BNP Paribas initiated an "outperform" rating on LCID citing the startup's clear technological advantage and Saudi backing. Lucid shares also benefited from the promise that one man's misery is another's fortune as TSLA stock plunged nearly 5% on news of an extended Covid-19-related production halt at its Shanghai factory.

But with the market under pressure and higher multiple growth stocks at greater risk due to ever-rising inflation and supply chain disruptions, does one day make the start of a trend in Lucid Motors? Let's see what other bulls and bears are relying on right now, both off and on the LCID stock price chart. From there, I'll offer a risk-adjusted judgment aligned with those findings.

Ticker Company Current Price LCID Lucid Motors $21.67

Bulls Kicking LCID Stock's Tires

Source: Charts by TradingView

Investors that are bullish on LCID stock and possibly view the company as the heir apparent to Tesla have a couple supporting factors in their corner.

For one, Lucid isn't an EV player without experience to help back it up. In fact, the company's CEO is an ex-Tesla engineer. Specifically, he was behind Tesla's wildly popular Model S luxury sedan. Also consider that Lucid's own Dream Edition began to hit the road late last year, with acclaim from owners and industry critics. The love was so great that it took home Motor Trend's 2022 Car of the Year award.

Then there's the secular tailwind in EVs for LCID stock investors to be positive about.

The U.S. market alone is expected to grow by more than 27% by 2026 on sales of $725 billion. As such, while Tesla is synonymous with EV's, just as with the traditional auto market, the space is becoming exponentially larger with room for a handful of industry giants rather than just one.

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On the price chart, right now Lucid shares are in their eleventh week of consolidating after a steep 64% correction from November's relative high. With shares testing a lifetime trendline and multiple Fibonacci levels which form a wide support zone spanning roughly $21 to $28, there are certainly reasons to see the area as critical to a meaningful bottom and LCID's next bullish phase.

Bears Don't Like What They're Seeing Under Lucid's Hood

Bears have some ammo of their own against LCID shares. One item, which sides with the stock's 21% short interest and this year's 47% decline, is Lucid management's downwardly revised production target.

At the end of February, Lucid aggressively trimmed its forecast to roughly 12,000 to 14,000 EVs. Compare that to the prior estimate of 20,000 vehicles, and you'll understand why investors were disappointed. The cause of lower estimate? "'[E]xtraordinary' challenges with logistics and its supply chain," according to Bloomberg.

Lucid dropped another shoe as it also rolled back the launch of the Gravity SUV from next year out into the first half of 2024.

Referring back to the Lucid price chart, LCID stock's bears are likely eyeing a failure to rally off key technical support on three occasions (failures No. 1, No. 2 and No. 3) the past couple months as an ominous sign. A bearish crossover in the stochastics indicator confirms the worry.

At the end of the day, Lucid's relative weakness could turn much uglier if its trend line and layers of Fibonacci support fail to hold shares above $20.50. I'd go so far as to say $10 and LCID's former net asset value isn't out of the question.

How to Trade LCID Stock Today

There are arguments for Lucid's bulls and bears that can't be ignored. But right now, LCID stock longs and shorts should be put on hold until the price action confirms the investment.

As mentioned earlier, a failure below $20.50 has significant profit potential for bears.

For LCID's bulls, I'd wait for the weekly stochastics to form a bullish crossover and an unlikely fourth rally attempt off support prior to buying Lucid shares.

If those conditions are met, the first target for taking profits would be near $35 and Lucid's 38% retracement level. Importantly, it goes without saying that any long stock positions tethered to Lucid's price chart need to be exited should shares ultimately break lower.

Alternatively, with LCID stock's history of larger volatility, bulls might consider an actively managed collar. Significant price swings up and down can net profits due to the position's adjustments over time, even in a down market and when other bulls are firmly underwater.

On the date of publication, Chris Tyler 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 Publishing Guidelines.

The information offered is based upon Christopher Tyler's observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

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