Nikola Stock Surges After Breaking Up From Bearish Trend Line: The Bull, Bear Case

Nikola Corp NKLA was surging about 22% higher Wednesday, reacting bullishly to producer price index data that came in lower than expected and the Federal Reserve’s decision to pause its rate hike cycle after raising interest rates on 10 consecutive occasions.

The stock was also continuing higher on momentum caused by Nikola shareholders rejecting a proposal to issue more stock, which last week caused the stock to break up bullishly from a descending trend line. Read more here...

A descending trendline acts as a resistance level and indicates there are more sellers than buyers even though the price continues to fall.

In order for a trendline to be considered valid, the stock or crypto must touch the line on at least three occasions. After that, the more times the trendline is touched, the weaker it becomes.

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The Nikola Chart: Nikola broke up bullishly from a long-term descending trend line on July 9 and negated its downtrend. Although Nikola negated the downtrend, the stock hasn’t yet confirmed a new uptrend by printing a higher low above 52 cents.

• Eventually, Nikola will retrace to print at least a higher low, which could provide a solid entry for bullish traders who aren’t already in a position. When the stock falls, traders can watch for Nikola to eventually print a reversal candlestick, such as a doji or hammer candlestick, to indicate the uptrend is likely to continue.
• A pullback is likely to come over the next few days because Nikola’s relative strength index (RSI) is measuring in at about 72%. When a stock’s RSI exceeds the 70% mark it becomes overbought, which can be a sell signal for short-term technical traders.
• Nikola has resistance above at $1.16 and $1.50 and support below at 81 cents and at the 52-cent mark.

Photo courtesy of Nvidia.