Li Xang (NASDAQ: LI), an electric vehicle (EV) company, soared 40% on its market debut yesterday. At face value, an investment sounds excellent. Because all EV stocks are rising and it is one day after IPO, so bullish momentum should still be there. However, beneath the water lie sharks such as the ruthless competition of the EV industry, the current overvaluations of the EV market, and the potential influx of shorters. Thus, today’s articles will provide our readers with everything they need to know on LI to make an informed investment decision.
Table of contents 1. Why was Li up today? 2. Everything you need to know before Investing in Li.
What to make of Li’s IPO price action
To say that Li’s trading activity was explosive would be an understatement. However, considering LI is a Chinese EV maker, we should expect nothing less. LI sells electric SUVs and is the first to successfully commercialize extended-range electric vehicles in China. Some investors may gloss over that statement and think, another Chinese EV company excellent. Hence yesterday’s volcanic activity. However, LI is not a pure EV company. Whether investors bought shares knowing the distinction is anyone’s guess. If the word gets out and the market realises the distinction, we could see a sell-off.
Everything you need to know before investing in LI
Before I begin, I am obliged to remind our viewers that this is not financial advice but rather investment commentary from extensive research
How EV IPO investments tend to play out
In the short-term, investors often see a rapid rise in EV stocks, just after the IPO. When viewing EV companies like Nikola and NIO, we can see this surge could last from a few days to up till a month. Thus, investing in LI with the intention to ride out the short-term momentum does hold weight. However, YIG stresses to investors that emotions will be running wild in the first few weeks. Investors will say comments like “this stock is going to the moon” or analysts might place overly ambitious price targets. In saying that, investors who have a modest predetermined profit target will come out on top.
While a short-term expansion may come to fruition, the bears will inevitably come out of the woods. For example, Nikola made a 500% gain in a month but then plummeted by 60%, leaving many hopeful investors burnt. The bearish track record of rising EV companies such as NIO and NKLA may entice investors to short LI. However, at the moment, the sentiment favours the bulls, based on today’s significant upswing. So shorting now might not be the best play. Because if you sold calls or bought puts, we could easily see LI surge off EV fever. Consequently, you would incur unlimited losses from your calls, and your put options would be worthless. Thus, waiting until the LI buying frenzy slows down to short should turn the odds in your favour.
Technical Analysis on Li
Li started its IPO off with explosive movement but has since consolidated to a less volatile trading price. The EV company found support around the $16.30 range. Considering the stock is at $17.17 (at the time of writing), we should see Li trade well above that support zone for the opening session on Friday. YIG would like to point out that if Li trades below the support level of $16.30 then we should experience significant selling momentum. Ultimately creating a lower support level.
On the resistance front, selling pressure was strong around the $17 mark. Usually, when stocks break out of their resistance levels they gain significant buying momentum. Considering Li is trading at $17.17 in pre-market, the stock has technically already broken out. Extreme bullish activity at open should be expected. However, Li still does have a higher breakout at $17.50. Thus, if you were looking to enter today purely because of a breakout, then you might want to hold your horses. Because waiting until new resistance levels are set is crucial. Otherwise you could find your investment being the highest the stock traded for a while.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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Written by Patrick McLoughlin, Senior Manager of YIG.