PreMarket Prep Stock Of The Day: Nikola

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

One of the most volatile stocks over the last few weeks has been Nikola Corp NKLA and it's today's PreMarket Prep Stock Of The Day.

The Company: Nikola is a designer and manufacturer of battery-electric and hydrogen-electric vehicles, electric vehicle drivetrains, vehicle components, energy storage systems, and hydrogen fueling station infrastructure.

It's just one of several of the issues in the shockingly red-hot electric vehicle market, spearhead by the king of the sector, Tesla Inc. TSLA.

The Pump: While Tesla was rapidly appreciating in value from March to June, Nikola did the same. After being dormant over the last few years, the issue started to signs of life in April.

After ending March at $10.64, it rallied to end April at $13.25. It more than doubled in May ($28.70) and finally peaked in early June ($93.99) before falling back to end the month at $67.53.

The Dump: Following a wicked three-day retreat off the all-time high, falling to $53, the free money on the upside was over. It managed to rebound off the $53 low to $76.30, but it could not hold those gains and ended June at $67.53,

When it struggled to hold that level in early July, sellers became much more aggressive pushing it to $29 and ended the month at $30. It grinded higher in July as high $47.45 and slipped back to end the month $40.81.

GM To The Rescue: Last Tuesday, longs in the issue were thrown a lifeline when General Motors GM announced it was investing $2 billion and partnering with them on the production of their Badger truck. With a major motor company showing interest in the company, it had one of its best days in months.

From its previous close ($35.55), it exploded to $54.56 before retreating to end the session at $50.05 -- a 42% gain.

Hindenburg Blows Up The Rally: Before the open last Thursday, Hindenburg Research issued a scathing short report on the issue, stating the companies "intricate fraud built on dozens of lies."

The report instigated a sell-off on the day to $37.57, The fallout from the report continued on Friday ($32.13), and earlier in Monday’s session; It cascaded to $28.75 and has staged a major rebound of that low.

PreMarket Prep Neutral On The Issue: One thing the hosts of the show despise is when a CEO consistently tries to pump up their company’s share price, and that is characteristic of Nikola's Trevor Milton. In fact, it appears at times he is more interested in talking up the company’s share price than actually making trucks that work.

On the other hand, the fact that an industrial giant like GM has invested in the company, one would think they had the resources to do full scale due diligence on the company before partnering with them.

Long- Or Short-Term Bottom In Place? Although the company has produced a weak response to the short report, the issue is on the rebound in today’s session, After a lower open, it continued in that direction until finding a bottom at $28.75 and has rebounded as high as $34.75 as of 12:40 p.m. ET.

The fact that is has distanced itself so far from the low, it may be the trade has become too crowded on the short-side, just as it had on the long side earlier this year. The current low coincides with multiple lows in the issue made in July after falling from grace with investors.

For investors banking a rebound, a breach of today’s low may lead to more downside action.
On the upside, its pre-GM investment closing price of $35.55 may be a good barometer to value the issue moving forward.

The full discussion on the issue from today’s show can be found here: