Nikola Sinks as GM Deal Falls Short of Expectations

Our latest analysis and trading strategy on NKLA shares.

Shares of Nikola (NKLA) are down sharply in Monday morning trading after reports that General Motors (GM)  has signed a memorandum of understanding (MOU) with the company that is smaller in scale than some investors hoped for and doesn't include any equity investment.

We reviewed Nikola's charts on Nov. 25 and wrote that, "CEOs tend to be positive about their company and are more cheerleaders than independent analysts. Traders who are long NKLA should raise stop protection to $28 now from $25 recommended on Tuesday."

Traders should have been stopped out on Friday.

Let's check out the NKLA charts again now.

In this updated daily bar chart of NKLA, below, we can see that prices have begun to retreat and closed below the 200-day moving average line on Friday. The On-Balance-Volume (OBV) line shows a peak and suggests that traders recently shifted back to being more aggressive sellers. The slow stochastic indicator (an overbought/oversold indicator) shows weakness after an overbought reading last week. 

 

 

 

In this updated daily Point and Figure chart of NKLA, below, we can see that prices could retest the $21-$18 area of potential support. 

 

 

 

Bottom-line strategy: Traders should have exited the long side on NKLA on Friday. Traders and maybe investors will be altering their ideas on the company Monday so avoid new positions -- a lot of dust needs to settle.

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