Shares of Switchback Energy (NYSE:SBE) have been a windfall for investors over the past month. But can the rally continue to motor on? The jury may be out longer-term. But a pending fresh charge for SBE stock happening off and on the price chart, the shares may be worth buying into for a short ride. Let me explain.
If youâ€™re looking to save the manatees with an investment, SBE might help. After its pending reverse merger with ChargePoint, the combined outfitâ€™s electric vehicle charging station technology, the largest network in North America and Europe, is the kind of stuff critical to this emerging marketâ€™s ability to continue capturing long-term mainstream acceptance. And back to our aquatic friends, that greener technology improves the planet and under a â€œKevin Baconâ€™esque six-degreesâ€ logic, all that goes with it. Nice, right?
Thereâ€™s more to like about SBE right now too.
The SPAC Angle on SBE Stock
SBE also looks like a win for investors betting on a market trend thatâ€™s racked up significant short-term returns on the back of newly formed special purpose acquisition company or SPAC reverse mergers. And that works out to a win-win!
Consider the following: April 24-DraftKings (NASDAQ:DKNG); June 4-Nikola (NASDAQ:NKLA); Oct. 29-Fisker (NYSE:FSR); and, Nov. 27-QuantumScape (NYSE:QS). The list goes on and on. Moreover, look at the price action after each outfitâ€™s merged debut and itâ€™s clear, thereâ€™s money to be made, right?
As InvestorPlaceâ€™s Faizan Farooque also notes, in a low interest rate environment and high valuations of other stocks, SPACs are a â€œsensible placeâ€ to invest. Actually, Iâ€™d just like to say, â€œBrakes please!â€
Despite the longer-term importance of a combined SBE and ChargePoint, for the time being, this space or SPAC market, is for the short-term parking of capital only. Itâ€™s important to not justify stretched valuations for anything other than a momentum trade that will become uniformly ugly at some point. Further, the other truth is not all SPACs are working according to plan in todayâ€™s market.
When the Music Stops
Investors are catching on to Wall Streetâ€™s game. And some of this marketâ€™s pre-debut excitement when shares still trade under the listed shell or blank check company, is proving too over-the-top for the celebration to continue under the new ticker. Hyliion (NASDAQ:HYLN) on Oct. 2 and Lordstown Motors (NYSE:RIDE) on Oct. 26 are two recentÂ high-profile flops giving investors an early warning.
So love the manatees! Cheer a Biden Presidency and be impressed with ChargePointâ€™s potential in making the planet a better place. But for godâ€™s sake, when it comes to SBE today, appreciate this version of musical chairs for what it is and play it without having the legs kicked out from underneath you.
SBE Stock Daily Price Chart
Click to EnlargeSource: Charts by TradingView
Who am I to rain on the SPAC traders parade? Last month, in writing about SBE stock, I did detail one very profitable way to play the SPAC game smartly out of a failed head-and-shoulders pattern more than 100% beneath the current market price.
Looking ahead rather than the rearview mirror, investors can still be bullish as SBE inches its way closer to its merged union with ChargePoint. But recognize the SPAC groupâ€™s recent casualties warn that weâ€™re probably closer to the ninth inning of play rather than the first.
Technically, the pullback of the last few sessions has our attention as an opportunity to buy SBE stock on weakness. Current prices have retraced just over 38% of the stockâ€™s near 180% rally over the past month. The correction has also allowed stochastics to move into an oversold position as shares test channel support.
Bottom-line and for investors okay with differentiating a trade from an investment for the long-haul, there is a play to be made. If shares of Switchback can confirm a low within this support area sometime in the next day or two, Iâ€™d recommend the January $35/$45 Bull Call Spread as a well-aligned vehicle with safer exposure to SBE stock.
On the date of publication, Chris Tyler held, directly or indirectly, positions in DraftKings (DKNG) and its derivatives, but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CATÂ andÂ StockTwits.