QuantumScape Is Battling A Steep Downtrend But Could Bounce

QuantumScape Corporation QS is set to report first-quarter 2021 earnings after Tuesday's bell amid a sector-wide rout.

The San Jose-based company, focused on researching solid-state lithium metal batteries for electric vehicles, is pre-revenue and doesn’t expect to produce its first battery cell until 2023.

The market is forward looking, however, and hype in the electric vehicle space saw QuantumScape reach an all-time high of $132.73 on Dec. 22 before declining almost 80%. The drop can be attributed to second-quarter sector weakness and a short report issued by Scorpion Capital in April.

Although QuantumScape’s downtrend may need a sentiment change for a full reversal back north, the stock looks due for a short-term bounce.

The QuantumScape chart: QuantumScape’s stock lost a key support level at $31.11 on Monday and in doing so, negated a potential double-bottom reversal pattern. The stock is trading below both the eight-day and 21-day exponential moving averages (EMAs), which is bearish, and has been in a downtrend, consistently making lower highs and lower lows, since March 15.

QuantumScape is at an interesting relative strength index (RSI) level where, in the past, the stock has bounced from. On Tuesday morning QuantumScape’s RSI measured at 25%, the lowest it has measured since the company went public, and technically indicates that stock is oversold. The lasts two times the stock’s RSI has dropped to near oversold conditions it has bounced.

Bulls want to see a positive reaction to QuantumScape’s earnings and for bullish volume to bring the stock back up over the $31 area. If it could reclaim that area, it has room to move up towards the $41 mark. There is a large gap above with a $10 range between the $74 and $84 price point, and because gaps are filled 90% of the time it's likely QuantumScape’s stock will trade back in that range at some point in the future. The stock has a lot of work to do before that would be possible, however.

Bears want to see QuantumScape’s stock drop to test support at $23.50. If it's unable to hold that level of support it could trade back down towards $15.77 before finding another support area.

QS Price Action: Shares of QuantumScape were trading down 3.6% at $27.43 at last check.

(Photo: QuantumScape)