This Micro-Cap Just Got Big News: A Deal With Amazon. Here’s How to Trade It

A better-than-expected producer price index report helped to give the market a boost at the open on Wednesday, but there were some quick reversals with the semiconductors (SMH) leading to the downside with a drop of 1.5%.

The problem is that we don’t have positive energy and that makes it hard for momentum to build. There has been some positive news flow such as the consumer price index, PPI and bank earnings, but there isn’t any good leadership. As I discussed earlier we have been seeing more new lows than new highs, which is indicative of a conflicted market in a trading range.

Biotechnology (IBB), which was supplying a good number of new highs as it benefited from rotational action, has rolled over and is under pressure again today. The group has had four-straight days of selling after hitting a new all-time high on July 9. I’m looking for some support to form in front of earnings, but buyers appear nervous. The key here is patience as support starts to form.

This past weekend I wrote an article about how the best way to judge the market isn’t by being bullish or bearish, but by looking at the number of opportunities. If I apply that lens, I’m seeing few opportunities right now, but the longer this action continues the more opportunities that will develop.

The indexes are doing a good job of covering up much of the corrective action. There is a lot of chop and many failed breakouts. The biggest problem is that there isn’t any strong leadership and too many traders are trying to make things happen in chips and AI despite mediocre price action.

An Interesting Setup in Electrovaya

I don’t have many trades going right now, but I want to highlight one small name that had potentially positive news this morning. Electrovaya (ELVA) is a name I have discussed several times in the past. It makes lithium-ion batteries for industrial equipment like the forklifts that move packages around warehouses. Its Infinity battery technology uses a ceramic separator that keeps the batteries from igniting when they overheat, which is a real safety advantage in busy warehouses.

The news this morning is a commercial agreement with Amazon (AMZN), which is already Electrovaya’s largest customer. Amazon receives warrants to buy up to 13.9 million Electrovaya shares, and those warrants vest as Amazon purchases $280 million of product over time. If Amazon eventually exercises all of them, it would own about 20% of the company. The stock jumped sharply on the news and then pulled back.

So how do you handle something like this?

I have been holding a small tracking position in the stock for a long time and now I want to add to it for the longer term. I made a small additional buy on a dip under $10.50 and now I am watching the price action for a chance to add more. The important thing is to be incremental. I believe this works longer term but it is going to be volatile and could pull back deeply. Shorts will likely try to pressure the spikes, and the stock has not yet surpassed the highs it hit in June, so I expect some consolidation before any real breakout. That could take a while.

When a company has a product strong enough to attract an equity investment from Amazon, there is a good chance other customers will want the same batteries Amazon is using. Electrovaya was already guiding to revenue growth of more than 30% this year to surpass $83 million, and a deal like this is the kind of thing that pushes future estimates higher. Amazon structuring it as a warrant deal tied to its own purchases tells you Amazon expects to buy a lot of product.

This is a small, high-risk stock that will be volatile, but that fits my style of trading, which is incremental, aggressive, and patient.

At the time of publication, DePorre was long ELVA