QuantumScape Looks To Break Out. What's Next?

After a months-long downtrend, QuantumScape Corporation QS looks as though it may have found a bottom.

After plummeting 64% in the seven days after making a new all-time high of $132.73 back in December 2020, QuantumScape has been unable to reverse its course. The downward trend was only exacerbated by a short report, released April 15 by Scorpion Capital, accusing the battery research company, of being a “pump and dump.”

Although QuantumScape hasn't released any news on its battery progress lately, there are signs on the chart that the stock may be headed higher in the day and weeks ahead.

The QuantumScape Chart: In its long downtrend, QuantumScape’s stock has settled into a bullish falling wedge and on Friday looks to have closed slightly above the upper descending trendline of the wedge. Although QuantumScape technically broke up bullish from the falling wedge, low volume on Friday caused the stock to lack follow-through on the move.

QuantumScape regained the eight-day exponential moving average (EMA) as support, but the 21-day EMA is currently acting as a form of resistance with QuantumScape pinned between the two. There have been 203 trading days since QuantumScape went public and the 200-day simple moving average (SMA) has just become an optional indicator. QuantumScape is currently trading about 24% below the 20-day SMA indicating that overall sentiment in the stock is bearish.

There is, however, a large gap between the $74 and $83 level and, because gaps fill 90% of the time, it's likely QuantumScape will trade back up into that price level in the future.

Bulls want to see large bullish volume come into QuantumScape’s stock to demonstrate follow-through on the bullish break of the falling wedge. This would also help the stock to regain the 21-day EMA as support. If QuantumScape can regain the 21-day EMA as support, it has room to move back up toward $31.

Bears want to see the 21-day EMA continue to pin QuantumScape’s stock down and for it to drop back below the eight-day EMA, which could push it back below the descending trendline of the wedge. If Quantumscape falls back into the falling wedge, it could be pushed down until its next support level at $23.50.

QS Price Action: QuantumScape was trading up 1.4% to $28.98 at publication time.