Electric vehicles represented so much promise but recently the sector has struggled. Just look at premium manufacturer Lucid (NASDAQ:LCID). Financially supported by huge backers and enjoying some positive notoriety as a Tesla (NASDAQ:TSLA) alternative, the upstart arrived on the scene with much fanfare. Unfortunately, investors aren’t all that excited about Lucid stock.
Since the beginning of the year, LCID incurred a loss of roughly 19%. Over the past 52 weeks, the equity suffered a massive hit nearing 55%. On a financial note, sales growth stalled in 2023. Naturally, the company is losing money every year in a capital-intensive industry. Circumstances hardly seem rosy.
At the same time, it might be too early to give up on LCID stock. In July, the equity appeared to have arrested its downward trajectory. Although there are plenty of reasons to be bearish against Lucid, it has some key factors moving in its favor. From a speculative point of view, it may be worthwhile to throw some pocket change at it.
Fundamentals Are Supportive of Lucid Stock
Within the broader EV space, it was Rivian Automotive (NASDAQ:RIVN) – not Lucid stock – that grabbed business headlines recently. Not too long ago, Rivian inked a deal with German automotive giant Volkswagen (OTCMKTS:VWAGY). As InvestorPlace contributor Larry Ramer mentioned, the reason for the partnership centered on Volkswagen looking to improve its EV software and architecture.
With the funds coming in, Rivian should be better positioned to introduce its upcoming R2 and R3 vehicles. Both are much more modestly priced and therefore target the middle-income crowd. The former model will be priced at $45,000 while the latter may come in around $37,000. Seemingly, this directive should benefit RIVN while Lucid stock languishes.
I have a contrarian view on this because beneath this directive is a tacit admission: Rivian is struggling to generate momentum in the premium, upper-tier segment of the EV market. Otherwise, if the company was enjoying robust success in the stratosphere, it would be imprudent to come near terrestrial levels. Why cheapen and dilute a desirable luxury brand?
In my opinion, Rivian needs to target the middle-income segment more out of necessity. But focusing on this consumer group opens new challenges. The lower the income level, the likelier it is that drivers are actually using the car; for example, commuting, getting groceries, running other errands. It’s not like a $200,000 Corvette, a toy for the affluent.
By marketing to average-income households, Rivian will now be competing against legacy automakers transitioning to the EV sector. That might “free up” space in the premium EV segment, which might benefit Lucid stock.
Options Traders Bid Up LCID
Another factor to consider regarding LCID stock is the derivatives market. Based on Friday’s market session, it appears that options traders are betting on the EV manufacturer swinging higher.
According to Barchart’s options flow screener – which focuses exclusively on big block transactions likely placed by institutional or professional investors – the net trade sentiment for Lucid stock derivatives clocked in at $66,000, favoring the bulls. Overall, options with positive sentiment (bought calls, sold puts) saw total premiums land at $111,900. Options with negative sentiment (sold calls, bought puts) sat at $45,900 below zero.
Some of the individual bullish options – such as the sale of 2024 Nov. 15 $3.50 puts – were intriguing. In this case, traders appear to be betting that LCID stock will rise to $3.50 or beyond by Nov. 15. If that happens, the put sellers (or writers) will be able to collect maximum premiums. But is such optimism justified?
Based on the technical dynamics, the answer appears to be “yes.” Since late November 2021, Lucid stock has been falling along a negative trend line. Prior efforts by the bulls to break above this level have failed. However, this month, LCID jumped above its 200-day moving average. This move appears to be signaling a break away from the aforementioned negative trajectory.
Still, given the severe downside, Lucid stock has much to prove. Over the next few weeks, it’s important for the equity to not fall below $3. By late September, LCID’s floor must be near $3.50. Otherwise, if the stock falls below these key levels, the bearish cycle may resume again.
The Takeaway: Both Fundamentals and Technicals Smile on Lucid
Although the EV sector has been a challenging one for its competitors, Lucid stock may have an opportunity to rise above the muck. For one thing, the underlying company is still purely focused on addressing the upper-income crowd. Other companies have started to back off from this niche but profitable segment to target the middle-income consumer. Second, options traders – essentially the smart money – see opportunity in LCID. Looking at the technicals, the enthusiasm appears justified.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.