Electric Vehicle Stocks, Just Another Craze…or the Future?

Electric vehicle stocks have been all the rage recently.  The largest cap stock and clearly the most widely recognized is Tesla (TSLA).  It went public on June 29, 2010 and closed that day at $4.78 (split adjusted). It would take 4 more months before it had a higher close.

By December 31, 2019 TSLA had a full head of steam and closed at $83.67.  But it was just getting started. Enter 2020.

As of November 27, 2020 TSLA closed at $585.76. The previous week it was announced that Tesla would be included in the S&P 500 Index. Tesla is up 7X the closing price at the end of 2019 with a market cap of over $540 billion making Elon Musk the 2nd richest man in the world.

But there are many other electric vehicle stocks in the market place and it seems like every established auto maker is also getting in the act. Many electric vehicle (EV) companies are headquartered in China but North America has a few also.

These next three electric vehicle stocks are worth a combined approximately $150 billion: Nio Inc. (NIO), Li Auto, inc. (LI) and Xpeng Inc. (XPEV) according to this Bloomberg article. XPEV founded in 2014 is headquartered in Guangzhou, China. NIO founded in 2014 is headquartered Shanghai, China. LI founded in 2015 is headquartered in Beijing, China. 

The next chart below shows that NIO is up 1343% in 2020 alone. It has been trading since September 12, 2018.

Li Auto came public on July 30, 2020 and closed at $16.46.  On Friday, November 27 it closed at $39.48...only up 240%.

And Xpeng came public on August 27, 2020 and is up 303% from its opening day closing price.

There are many other companies that are focused on EVs also. Some are truck only, some small commercial vehicles only, some are battery related. Here are a few of the names: BYD Co. Ltd.(BYD) - China, Nikola (NKLA) - U.S., Workhorse (WKHS) - U.S., Kandi Technology Group (KNDI) - China, Blink Charging Co. (BLNK) - U.S., ElectraMeccanica (SOLO) - Canada, Ayro Inc. (AYRO) - U.S. and Green Power Motors (GP) - Canada to name a few.

This is a dynamic, quickly evolving market. Given the ever increasing focus on climate change and the future health of the planet, electric vehicle stocks are definitely in the crosshairs of many traders and investors.

  • a few months ago
  • Energy

Grand Finale…all the Tools were Assembled

In the depths of the Great Depression, the Dow Jones Industrial Average (DJIA) hit a low of 40.56 in July 1932. Since that time there have been three major advances. The first Cycle Wave peaked in 1937. The second Cycle Wave was a correction that last until 1942, shortly after the United States got into World War II.

The third Cycle Wave lasted about 24 years from 1942 to 1966. This was a tremendous post-war boom for our country and for the world as countries recovered and rebuilt.  But from 1966 until 1982 the stock market chopped sideways in a complex correction for Cycle Wave IV.  There were many ups and downs but the DJIA could never really break through and sustain a move above 1000.  This wave pattern fit the Elliott Wave guidelines of alternation perfectly in that Cycle Wave II was a sharp pullback and Cycle Wave IV was sideways.

So the DJIA lifted off in Cycle Wave V in August 1982. And it’s been an amazing run.  Cycle Wave V has taken 38 years and is about to complete. The length of these large cycle waves have interesting Fibonacci relationships.  Cycle Wave I was 5 years. Cycle Wave II was 5 years. Cycle Wave III was 21+3 years. Cycle Wave IV was 13+3 years. Cycle Wave V is 34+4 years.  Cycle Wave V may actually stretch into early 2021 but we are getting very close to the end.

 

 

When you think about all the tools of market participation and speculation, it is amazing to see when these tools were introduced. Almost all of them were launched during Cycle Wave V.  This wave has created the most extreme market price action of the entire 88 year history of SuperCycle (V). So what tools are we talking about? 

The following is a list of the market instruments and when they were introduced. I am numbering them and putting their corresponding number on the long-term monthly chart of the DJIA.

  1. 1973 – Exchange traded call options on stocks
  2. 1977 – Exchange traded put options on stocks
  3. 1982 – S&P 500 futures contract introduced by CME
  4. 1983 – first option on stock index futures
  5. 1988 – first domestic futures contracts based on foreign stock indexes
  6. 1990 – LEAP options created with expirations up to 3 years
  7. 1993 – CBOE creates the Volatility Index (VIX) 
  8. 1993 – S&P 500 ETF (SPY) began trading
  9. 1998 – DJIA ETF (DIA), “diamonds” created
  10. 1999 – Nasdaq 100 ETF (QQQQ) began trading
  11. 2004 – VIX futures contracts created
  12. 2005 – VIX options launched
  13. 2005 – Weekly options introduced
  14. 2006 – first leveraged ETFs introduced

I may have missed a couple but you get the picture. Now these instruments don’t cause irrational exuberance but they sure help social mood to get played out in the stock market.  I think that many of these instruments are great tools and when combined with the technological revolution since 1982, it has been simply amazing.  The explosion in the stock market during this Cycle Wave V from 1982 is incredible.  

For some perspective, the average daily volume on the NYSE in 1980 was 44.87 million shares up from 32 million shares a day in 1979, which was then a record. (NY Times 1/1/81)  The average daily volume today is 4.2 billion shares according.Yahoo Finance.

 

 

 

89 Year Echo

Reminiscence of Stock Market Crashes

The sell-off in March was a crash in the stock market. I’m calling it the Covid Crash. The Dow Jones Industrial Average (DJIA) dropped 38.4% from intra-day high to low in just 27 trading days. We are now approaching the 5 month anniversary of the Covid Crash low in the market.  The DJIA has rallied 54.6% from the March low to a recent high on August 11. See the chart below.  So where do we go from here?

 

This is a reminiscence of two other times in market history when I think about the swiftness and brutality of the recent crash. The 1987 Crash and the 1929 Crash.  The 1929 Crash is of course, the most famous because it led to the Great Depression.  In the chart below you see the price action surrounding the 1929 Crash.  The DJIA dropped 49.4% in 47 trading days and then rallied 52.2% in 5 months. But that was it. On October 9, 1930, approximately 10 1/2 months after the stock market bottomed in 1929, the low was broken. It took 25 years for the 1929 high to be surpassed.

 

The 1987 Crash was also a very scary time as the market experienced its biggest one day drop ever. In the chart below you see that DJIA dropped 40.2% in 39 trading days.  At the time many people were concerned that we were about to experience a repeat of the aftermath of the 1929 Crash. The DJIA only rallied 28.8% in 5 months, looking very weak. But the market did not break down. The low was not broken. The 1987 high was surpassed on August 11, 1989, only 2 years after the 1987 peak.

So here we are about one week shy of 5 months from the Covid Crash low. What will the market do now? We are experiencing significant divergences between major indexes, similar to what happened in 2000. If February was the high in the DJIA then the market should turn down fairly soon. This month is 5 months after the Covid Crash low.

 

Bulls, Bears Battle Royale

We just completed market action for the month of June and I want to provide some perspective on the three major indexes. These are monthly charts and the key level I'm highlighting is the January 2018 close.

That month was the peak of huge momentum for the markets. Since then the major indexes have been oscillating back and forth in huge gyrations. The first chart shows the Dow Jones Industrial Average (DJIA). The DJIA close June lower than the close for January 2018.  Bears are winning.

The second chart is the S & P 500 Index (SPX). It is fascinating to see that the January 2018 close resides right in the middle of all the price action since then. Bulls vs Bears is a draw at this point, with an edge to the Bulls due to higher close.

The third chart is the Nasdaq Composite Index (COMPQ).  This one has some huge oscillations also but with an upward slant to it.  There is a bit of frenzy/bubble going on here, similar to the 2000 bubble.  So far COMPQ is the only one of the three to push above the February 2020 highs. Bulls are clearly winning this battle...but for how long?

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