PreMarket Prep Stock Of The Day: Hyliion

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

If you haven't heard about it by now, the SPAC craze is in full bloom on Wall Street. Hyliion Holdings Corp HYLN is in its third day of trading as a combined company and is the PreMarket Prep Stock Of The Day.

What Is A SPAC? Investopedia describes it as a special purpose acquisition company (SPAC) with no commercial operations that is formed strictly to raise capital through an initial public offering for the purpose of acquiring an existing company. In 2020, more than 50 SPACs have been formed in the U.S., as of the beginning of August, raising some $21.5 billion.

Most SPACS are priced at $10 and there is no clear reason for that other than for the ease of accounting purposes.

Why So Popular And Volatile? With the early success of DraftKings DKNG along with a few others, they're considered by many as a "sure thing," especially when formed by some of Wall Street's greatest investors. Also, in this rock-bottom interest rate environment, investors are hungry for yield and principal return and are willing to take a flier on most anything.

What Is Hyliion Holdings Corp? Hyliion is the result of a merger between the former Totriose Acquisition Corp SHLL and itself. It claims to help people get the benefits of an electric vehicle without some of the negatives. The company will attempt to use the existing infrastructure of a natural gas station, instead of building out an entirely new infrastructure.

"What we’re doing is we're actually leveraging natural gas and using that to produce electricity locally on the truck to actually charge the batteries up," says CEO Thomas Healy.

Extremely Volatile After Merger Announcement: True to form, SHLL labored at the $10 area of a newly formed SPAC from April 2019 until June 19, 2020, when the merger of the two companies was announced. True to form, it rallied on that day from $10.22 to $14.04 on heavy volume on kept going.

With only pullbacks, the issue reached $58.66 on Sept. 2 and had its ups and downs until posting its all-time closing high on Sept. 29 ($53.51). Interestingly, that was three days before its post-SPAC merger trading on Oct. 2.

What Are The Big Boys Doing? Selling: The two days prior to first day of trading, it declined from $53.51 to $44.91 and that was just the start of things to come. On Friday, the first official day as a combined company, it fell from $44.91 to $39.51. On Monday, the sellers took a breather as it shed only $0.34 to $39.16.

However, the axes are back in the stock in today’s session. After a lower open, it attempted to rally but came up well shy of Monday’s close ($39.16) and resumed its move lower. As of 1:45 p.m. ET, it declined to $32.50 and rebounded back into the $35 handle.

What Now? From a purely technical standpoint, the issue needs to stop going down soon or could be in real trouble for a few different reasons.

First of all, it has breached what was its lowest level since making its all-time high from Sept. 24 ($33.21), which provided a foundation for the wicked rally in only four sessions to $54.45, reaching $32.50 earlier in today’s session. Those two lows coincide with a 50% retracement from its pre-merger announcement low ($10.19) to its all-time high ($58.66), which is $34.30 area.

If the decline continues, the next daily support level comes in at its Aug. 24 low ($31.25) and then drops off to its Aug. 21 low ($28), On the upside, if somehow the issue is able to stabilize in this area and rallies, it will be met plenty of sellers, long at higher prices, attempting to mitigate their losses.