EVs Are Now a Dangerous Space to Trade, Long or Short
If you can't see that the electronic vehicle space has gone off the rails, you're lying to yourself at this point. Does that make it a short? That's an entirely different question. What it does is it makes it an extremely dangerous space to trade either long or short. The recent rip-your-face-off rally has killed shorts and left doubters on the sidelines dreaming about what could have been. Longs are jubilant, celebrating huge gains into the upcoming Thanksgiving holiday. But now we're talking about the past.
What happens next is the only thing that matters.
Shorting here, based on fundamental logic makes sense but we are devoid of logic. Momentum doesn't care about logic. Momentum cares about momentum. Buy now. Someone will pay me more shortly. But as fast as these names have risen, they could fall. Like everything else in the market, there is no guarantee they will fall (just ask Tesla (TSLA) doubters), but my hunch is these aren't the lows printing today in Nio (NIO) , Li Auto (LI), Xpeng (XPEV), Electrameccanic Vehicles (SOLO) , Fisker (FSR) , and a few others. There's simply not enough stability in those markets yet, even in China.
And many U.S. names are years away from producing anything of significance in terms of vehicle quantity for startup names. They will be subject to getting hit hard if the market skips a beat or when investors actually want to see something beyond a flashy press release with no real substance behind it. That's why I left Fisker behind today. The risk-reward in the $10 to $12 range warranted a trade. Increasing that market cap 50% in a week's time shifts the needle to greater risk and a reward that relies 100% on momentum and FOMO (fear of missing out).
In some regards, this is a catch-up to Tesla. Notice how that stock has not participated? The market cap is simply too big. Traders are on the hunt for the next Tesla or justifying higher valuations on smaller names by comparing them to Tesla. Tesla bulls should actually be happy despite the stock not moving. The push higher in other names brings more justification to Tesla maintaining its current value. I'm not saying I agree, but that's my read through.
This crazy move is going to leave many more in tears, not just the shorts already crying. The risk of a major rug pull increases with each 10% to 20% single day move and the 50% to 100% intraday weeks moves we're seeing. If you're long, congratulations, but please have an exit plan in mind whether it be a trailing stop, scaling out of the position as it climbs, or shifting long stocks or long calls into higher priced long calls to reduce capital risks.
I have no idea where the top will come. Is it close? In terms of days, I believe we're getting very close, but with the huge moves these stocks are making on a daily base, even two days from now could mean a top comes from 20% to 50% higher. I'll go down as saying I don't think we'll see moves that high from current levels, but that's easy to say without money at stake in these names currently.
At the time of publication, Timothy Collins had no position in the securities mentioned.