Nikola Stock at Crossroads Amid Upgrade and Profit Taking

Nikola Corporation (NKLA) shares rose more than 7% during Wednesday's session after Cowen & Co. initiated coverage of the stock with an Outperform rating and a $79.00 price target. Analyst Jeffrey Osborne believes that the stock is an interesting opportunity that leverages one truck platform, two powertrain options, and three business segments with optionality in other areas.

In addition, Osborne believes that the partner ecosystem cuts risk from the ramp-up in production next year. Over the long term, the analyst believes that Nikola could evolve into a broad-based energy technology company as hydrogen fueling infrastructure is built out. The company intends to start deliveries of its electric commercial trucks next year while it looks for partners to produce its Badger pickup truck with a 600-mile electric range.

Earlier this week, San Francisco-based ValueAct disclosed a 5.6% stake in Nikola. The activist hedge fund has a history of purchasing out-of-favor companies that are undergoing a significant transition and working with management to increase the long-term value of the stock.

From a technical standpoint, Nikola stock has been in consolidation mode following a sharp run-up beginning in May. The relative strength index (RSI) remains near overbought levels with a reading of 68.23, but the moving average convergence divergence (MACD) is still in bullish territory. These indicators suggest that the stock could continue to consolidate before making another move higher.

Traders should watch for consolidation between $60.50 and $73.00 per share over the coming weeks. If the stock breaks out higher, traders could see a move to retest highs at $94.00. If the stock beaks lower, traders could see a move toward support near $45.00. The bullish fundamental sentiment suggests that the stock could retain its gains over the past two months and potentially move higher over the long term.

The author holds no position in the stock(s) mentioned except through passively managed index funds.