Spaceship manufacturer Virgin Galactic Holdings, Inc. (NYSE: SPCE)
stock imploded on the failure of a test flight sending shares collapsing from a high of $35.82 to a low of $23.78 in eight trading sessions. While the ship landed safely and no one was hurt, the shares were punished by a combination of the insider selling of 3.8 million shares by its chairman, Chamath Palihapitiya, and the registration filing for up to 8 million shares issuable upon exercise of warrants. Despite Credit Suisse defending the stock, the selling pressure was massive. SPCE is a rare stock that isn’t affected either way by the pandemic
even in light of COVID-19 vaccine distributions
underway. Space travel may soon join alcohol and tobacco under the elastic principle as this incident likely has no long-term bearings on demand. While a sell-the-news reaction was inevitable due to the powerful rally into the test launch, the subsequent overreaction on the collapse can provide prudent investors opportunistic pullback entries to consider scaling into a speculative position.
What Exactly Happened to the Test Flight?
Virgin Galactic scheduled its first test flight into space on Friday, Dec. 11, 2020. The objectives included testing elements of the customer cabin, assessing horizontal stabilizers and flight control after reaching 50 miles above Earth. The flight was also carrying some payloads under the NASA Flight Opportunities program. Due to COVID-19 protocol, only essential staff were on-site during preflight. As the mothership carrier plane White Knight Two got to 44,000 feet elevation, the SpaceShipTwo Unity engine “did not fully ignite as it attempted to launch over New Mexico on Saturday”, according to CEO Michael Colglazier. “After being released from its mothership, SpaceShipTwo Unity’s onboard computer that monitors the rocket motor lost connection. As designed, this triggered a fail-safe scenario that intentionally halted ignition of the rocket motor.”, continued Colglazier, “…our pilots flew back to Spaceport America and landed gracefully as usual… Seeing firsthand how our pilots brought Unity in for a picture-perfect landing after an off-nominal condition confirmed this approach.” This was the first of three test flights of which the final test will carry founder Sir Richard Branson. The Company also has several motors at the ready at Spaceport America to be “back in flight soon” according to a Tweet. In essence, this was almost a non-event. Despite not reaching space, the fail-safe was demonstrated with no lasting damage or safety problems.
Elastic Business Model
No word from Virgin Galactic if this failed test flight had any effect on the 600 reservations booked between $200,000 to $250,000, with a backlog of 400 interested passengers for 2021 bookings. The demographic for early space tourism is a millionaire that can spare the $250,000 ticket, so demand won’t be shaken by the test flight or economic tailwinds as the first 600 bookings occurred several years ago. Shares should recover upon announcement of the next test flight. The three test flights are composed of two pilots first the first, then the addition of four passengers for the second and the final test flight to include iconic founder Richard Branson. The hype will recover upon announcement of scheduling of the next test flight. Originally, this was scheduled for Q1 2021 with the window for commercial travel to commence after the third successful test flight by the end of 2021. Any positive updates should put a bottom in on the shares. Prudent investors looking to get in on the opportunistic pullbacks should monitor key price levels while shares are down.
SPCE Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames enables a broader view of the playing field for SPCE shares. The monthly rifle chart is still in an uptrend with a rising 5-period moving average (MA) near the $21.27 Fibonacci (fib) level. The monthly stochastic is also in a mini pup at the 40-band as the 5-period MA has yet to test. The monthly upper Bollinger Bands sit at $30.17. The weekly rifle chart triggered a market structure low (MSL) buy above $18.39. However, it also formed a market structure high (MSH) sell trigger on the break of $23.84, which is where shares closed at. The weekly rifle chart formed a dramatic peak falling back under the weekly upper BBs at $32.15 and weekly 5-period MA at $27.02. The weekly stochastic may be crossing down at the 80-band, but also has the potential to headfake and coil back up if it can successfully defend the $23.84 and recover the daily 5-period MA. Prudent risk-tolerant investors can cautiously monitor opportunistic pullback levels at the $22.86 fib, $21.27 fib, $30.22 fib, $18.39 fib and the $17.71 monthly 15-period MA/fib. The lower the pullback level, the better the risk-reward potential. The upside trajectories range from the $29.61 daily MSH trigger up towards the $40.72 fib.
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