Nikola Stock Falls After Analyst Tempers Enthusiasm

Nikola Corporation (NKLA) shares fell more than 11% during Tuesday's session after RBC Capital initiated coverage of the stock with a Sector Perform rating and a price target of $46 per share. Analyst Joseph Spak expects zero-emission trust demand to grow as government regulations, incentives, and corporate sustainability goals kick in, but he called the company more of a business plan in the current moment.

Earlier this month, Nikola founder Trevor Milton tweeted that the company sold out packages for deposits on its upcoming Badger pickup truck. The automaker began taking deposits on its electric or hydrogen fuel cell pickup truck on June 29, 2020, with plans to deliver the truck on Dec. 4, 2020. The stock has also been bolstered by Tesla, Inc.'s (TSLA) soaring valuation over the past few sessions.

In late June, JPMorgan analysts warned that that Nikola shares were fully valued for the short term at their then-current levels, creating the possibility of a near-term pullback. Analyst Paul Coster wrote that Nikola's business model could be compelling, but the risks were elevated for the pre-revenue company. The analyst maintained a Neutral rating and a $45 price target at the time.

From a technical standpoint, the stock moved sharply lower toward its 50-day moving average at $40.85 during Tuesday's session. The relative strength index (RSI) dipped to 39.77, but the moving average convergence divergence (MACD) remains in a strong bullish downtrend. These indicators suggest that the stock could see a bit more downside before some consolidation.

Traders should watch for consolidation near the 50-day moving average at $40.85 over the coming sessions. If the stock rebounds from those levels, traders could see a move toward reaction highs of $75.71. If the stock breaks down from those levels, traders could see a move toward prior reaction highs of around $35.00. The bearish MACD suggests traders should assume that further downside lies ahead.

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