Li Auto Plunges Alongside Tesla Following Bearish Margin Data: The Bull, Bear Case

Li Auto, Inc LI fell over 6% on Thursday in sympathy with Tesla, which dropped almost 10% after reporting its first-quarter earnings results, which showed a margin decline.

Tesla has been slashing the prices of its EV models to increase demand. Some worry the move could start a price war, which could reduce profits across the industry.

Lower margins could weigh heavily on Li Auto, which Tuesday announced plans to triple its product line, up to 11 models by 2025. Read more here...

Li’s negative reaction to Tesla’s earnings caused the stock to negate the uptrend it had been trading in since March 15, when the stock bounced into the trend after forming a double-bottom pattern near the $20 level.

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The Li Auto Chart: After topping out at the $26.27 mark on Monday, Li Auto began to retrace within its uptrend. On Wednesday, the stock printed a doji candlestick, indicating a bounce was on the horizon, but Tesla’s news forced the candlestick to negate, and Li Auto fell lower, negating the uptrend.

• Although the uptrend has been negated, a downtrend hasn’t yet been confirmed. For a downtrend to confirm, the stock will eventually have to bounce up to form a lower high under the $26 mark. Bearish traders can watch for the stock to print a bearish candlestick, such as a doji or shooting star candlestick, under that area for a possible entry.
• Li Auto has two gaps above on the chart, with the first gap between $23.69 and $24.31. Gaps fill about 90% of the time, which makes an eventual rise over $24 the most likely scenario. If that happens, Li Auto may find resistance at the upper range of the gap.
• Bullish traders want to see big bullish volume come in and break Li Auto up through the closest gap and then for a retracement to cause the stock to form a higher low, to indicate a bear trap occurred, and the stock will reverse course back into an uptrend.
• Li Auto has resistance above at $23.62 and $26.42 and support below at $20.80 and $18.83.

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