Special purpose acquisition company (SPAC)
Churchill Capital Corp IV NYSE: CCIV stock has been a volatile, if not violent, rollercoaster ride. Shares shot up from $10 on speculation of a Lucid Motors reverse merger to peak at $64.86 just three days ahead of the official announcement resulting in a subsequent price collapse to $20.40 in the coming weeks. The
momentum in EV stocks has peaked hard as many stocks have gone through 50% or more haircuts off highs in recent weeks. The acceleration of
COVID-19 vaccinations is driving rotation back into the epicenter stocks while repricing the
pandemic and
new normal winners. Shares of EV leader
Tesla NASDAQ: TSLA spearheaded the rising in EV stocks and also lead the fallout as the market unwinds and reprices the players. The market has noted two “Tesla Killers”
Fisker Inc. NYSE: FSR and Lucid Motors, although neither has generated any revenues or produced any vehicles yet. Risk-tolerant investors seeking exposure in Lucid Motors can watch for opportunistic pullback levels in shares of Churchill Capital Corp or wait for the combined entity in H2 2021.
Lucid Motors Production Facility
The target of Churchill Capital Corp IV is Lucid Motors. The Newark, California-based company has completed phase one of its AMP-1 Casa Grande, AZ, EV facility on Dec. 1, 2020. The 999,000 square feet factory has a production capacity of up to 400,000 EV cars annually. Expansion of the facility is expected to reach 5.1 million sq. ft. by 2028. Originally, the Company planned to roll out its Lucid Air model in Spring 2021 but has delayed the launch until H2 2021. Lucid has teamed up with the Electrify America network of over 2,400 charging stations to providing recharging capabilities.
The Flagship Lucid Air Lineup
The flagship EV will be the Lucid Air line of four EVs ranging from the Air Pure from $69,900 includes rear-wheel drive, 480 horsepower and 406 mile projected range up to the Air Dream Edition with dual motor all-wheel-drive includes 503 mile range and 1,080 horsepower starting at $161,500. Keep in mind that starting prices include the $7,500 U.S. Federal Tax credit. Fully refundable reservations range from $300 to $7,500. All models are customizable with options and include over-the-air software updates. All Lucid Air reservations until the end of 2021 will receive a complimentary charging of up to 350kW on the Electrify America network for three-years. The “ultra-fast” 900V+ architecture and onboard Wunderbox boost charger enable up to 300 miles of charge in 20 minutes when connected to DC fast chargers. The Company has confirmed over 7,500 reservations as of February 2021. The Company plans to open nine more Lucid Studios in addition to the existing five studios current open to showcase its EVs and build brand awareness. The narrative of Lucid as the “Tesla Killer” took shape as key Tesla engineers and designers left to join Lucid. What could go wrong?
What Caused the Sell-Off?
On February 22, 2021, Churchill officially announced the reverse merger with Lucid Motors at an $11.75 billion equity valuation or a $24 billion pro forma equity value. To the joy of retail investors, they got what they wanted. Unfortunately, shares collapsed (-26%) from the $57.67 closing price to $42.21 immediately following the post-market announcement and release details. Some of major points included the additional of a $2.5 billion raise through a $15 PIPE as well as the delay of rolling out EVs until later in 2021, instead of the April 2021 rollout date. The Company also provided a disappointing number of reservations around 7,500 or $600 million in revenues. This is a far cry from EV peers like Lordstown Motors NASDAQ: RIDE with over 100,000 reservations for their September 2021 rollout of the Endurance truck, which would theoretically result in over $5 billion in revenues. The $15 PIPE for $2.5 billion roughly equates to nearly 167 million shares that are likely to be collared or hedged to lock in gains. This is done by shorting the stock and/or hedging with put options. Both of which place tremendous selling pressure on underlying shares. The background context of the EV sector sell-off didn’t help matters either as shares collapsed to a near-term low of $20.40 on March 5, 2021.
SPAC Sell-the-News
It’s also important to be aware of the dynamics of SPAC price action. Most SPACs have historically sold off when the new business combination is finalized with a new stock symbol. As pointed out in an earlier MarketBeat Original article referencing the price fallout of reverse merged SPACs, “Several stocks come to mind including Canoo NYSE: GOEV, Fusion Fuel Green (NYSE: HTOO) and Hyliion NYSE: HYLN. The rule of thumb is to cash out of SRAC shares up to the date of the shareholder vote and repurchase shares under the new symbol after it bottoms out, usually three to eight days later.” Investors seeking to own shares if Lucid Air would be better off to wait for the date of the conversion and symbol change. However, risk-tolerant investors seeking exposure ahead of the announcement can watch for opportunistic pullback levels.
CCIV Opportunistic Pullback Levels
We use the rifle charts on the weekly and daily time frames to provide a near-term perspective for trading CCIV shares. The weekly rifle chart uptrend has stalled on the violent price reversal after peaking off the $64.86 Fibonacci (fib) level. The weekly channel tightening occurred in two weeks as shares collapsed through the 5-period moving average (MA) at $36.54 and through the 15-period MA at $21.07 before coiling back up. The weekly upper Bollinger Bands (BBs) sit at the $50.32 fib. The daily rifle chart illustrates the violent sell-the-news reaction on the Lucid reverse merger announcement as shares collapsed with a falling daily 5-period MA at $26.27. The daily market structure low (MSL) triggered above $24.35 versus the weekly market structure high (MSH) trigger below $26.71. The daily stochastic completed a full mini inverse pup oscillation down to the 5-band still trying to coil back up. Risk-tolerant investors can monitor opportunistic pullback levels at the $22.50 fib, $21.76 fib, $20.40 fib, $19.40 fib, $17.73 fib, and the $16.28 fib. Prices won’t fall below the $15 PIPE pricing, the closest you can get shares to that price, the better. Keep an eye on peer FSR as the other “Tesla Killer” as prices are starting to correlate with each other. Upside trajectories on this SPAC range from the $30.15 fib to the $44.83 fib level.
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