It is no secret that stocks are prone to sudden moves in either direction. This could be triggered by economic data, geopolitical events, stock-specific news, or market sentiment.
Trading such volatile stocks are usually considered a high-risk-high-reward venture. Many traders opt to stay out of the trade rather than risk a loss. However, careful analysis of the charts could help you to enter at the right levels, thereby limiting risk to an extent.
With this in mind, we have started a new weekly series on the trending stock of the week —stocks that are featured heavily in the news.
This week’s stock pick is Churchill Capital Corp IV (NYSE: CCIV). It may be noted that Churchill Capital IV is a ‘blank-check company’. This means that CCIV is a special purpose acquisition corporation (SPAC) that was formed solely for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses. Such blank check companies are free to pursue an initial business combination target in any business or industry.
Why is CCIV trending?
Churchill Capital Corp. IV (CCIV) has been speculated to be the SPAC linked to luxury EV maker Lucid Motors, dubbed as “the next Tesla”. Bloomberg had recently reported that the two were in talks in a deal that would take Lucid motors public. The deal is expected to be for as high as $15 billion and could establish Lucid as a true competitor to Tesla.
Lucid Motors’ $169,000 Lucid Air, created by Tesla’s Ex-Chief Engineer Peter Rawlinson, is scheduled for this spring. Rawlinson claims Lucid Air will be the fastest, longest-range electric vehicle on the planet.
However, it may be noted that nothing has been formally announced about the merger yet. CCIV is also one of the Reddit-driven retail stocks for 2021.
Here’s how to trade CCIV right now.
CCIV Chart
On analysis of the hourly chart of CCIV, the overall trend of the stock seems to be up.
Hourly Chart – CCIV
#1 Unbroken Uptrend: The hourly chart shows that the stock’s uptrend is unbroken, as it has been forming higher highs and higher lows. This uptrend line has been marked as a pink color line. The stock had taken support near this trendline multiple times before bouncing higher again. These bouncebacks from the trendline are marked as blue color ellipses in the daily chart.
#2 Price Above MAs: The stock is currently above its 200-hour as well as 50-hour SMA, indicating that the bulls are presently in control.
#3 Bullish RSI: The hourly chart shows that the Relative Strength Index is currently above 50 and moving higher. This indicates the strength of the current upmove.
Recommended Bullish Trade (based on the chart)
Buy Levels: If you want to get in on this trade, the buy level for CCIV is near the price of $33.90. This is marked as a green color dotted lines in the daily chart.
Important Note: Make sure that you only enter the trade once the daily close is above the recommended price level.
TP: Our target prices are $40 and $45 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at $30.60. Note that the stop loss is on a closing basis.
Target Upside: Our target potential upside is 18% to 33% in the next 3-6 months.
For a risk of $3.30, our first target reward is $6.10 and the second target reward is $11.10. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 3x more potential upside than downside.
Risks to Consider: The stock may reverse its overall trend if it breaks down from the trendline with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Recommended Bearish Trade (based on the chart)
In case the stock breaks down with very high volume from the trendline support and closes below that level, it could point to an upcoming short-term correction. In that case, below are the entry levels, stop loss levels, and target prices.
Sell Level: You can take short positions on CCIV if it closes below the trendline support, at a price of around $29.90. This sell level is marked as a red color dotted line in the chart.
Important Note: Make sure that you only enter the trade once the daily close is below the recommended price level.
TP: Our target price is $25 in the next 3-6 months. In case the stock breaks down below that level with a high volume, the next target price is $20.
SL: To limit risk, place a stop loss at $32.00. Note that this stop loss is on a closing basis.
Our target potential downside is 16% to 33% in the next 3-6 months.
For a risk of $2.10, our first target reward is $4.90 and the second target reward is $9.90. This is a nearly 1:2 and 1:5 risk-reward trade
In other words, this trade offers nearly 2x to 5x rewards compared to the risks.
Risks to Consider: The stock may reverse its overall trend if it breaks upwards with high volume. The breakout of the stock could be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.
Happy Trading!
— Trades of the Day Research Team
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