Market bulls have something to be upbeat about this week. But for electric vehicle (EV) upstart Rivian Automotive (NASDAQ:RIVN), the brakes need to be thoughtfully applied to RIVN stock.
In the wake of Friday’s broad-based rally confirmation, many investors have reason to be positive and on the lookout for portfolio additions. Historically, a follow-through day in the major averages sets up the possibility for a longer-term bull market to emerge.
But EV play RIVN barely eked out a gain of just 0.10% on Friday.
At the same time, much larger rival Tesla (NASDAQ:TSLA) stormed higher by 4.52%. And to start the new trading week, Rivian shares declined 3.59%, while Tesla consolidated its healthy gains with a much more constructive fractional loss.
So, what gives in RIVN stock? Below let’s dig into what’s impacting shares, as well as when and how a stronger purchase can be pursued.
Less Under the Hood in RIVN Stock
Inflation. Interest rate fears. Supply chains impacted by Covid-19 and the war in Ukraine. They’re bad actors in 2022 that have been particularly troubling for up-and-coming EV companies trying to get the rubber on the road.
The damage includes Rivian whose shares are down 72% this year despite admirably managing to become the first automaker to deliver a fully electric pickup truck this past fall into the market with its R1T.
Nevertheless, reminding investors that problems aren’t entirely in the rearview mirror, analyst Vijay Rakesh from Mizuho dialed back some enthusiasm on RIVN stock due to concern the harmful impact of persistent Covid-related shutdowns in Shanghai weren’t being fully recognized.
A buy rating on RIVN was reiterated by the brokerage, but Rivian’s price target was cut from $80 to $70 and current quarter delivery estimates were trimmed from 4,200 to 3,900 vehicles.
Interestingly, Tesla was similarly presented with a buy reiteration and reduced outlook on shares. But as noted, Rivian’s bearish 3.59% reaction by investors was clearly evident compared to TSLA stock’s modest and near brush off of 0.32%.
RIVN Stock’s Other Challenges
Source: Charts by TradingView
With both cut price targets remaining well-above current share levels, arguably Tesla’s mostly dismissive reaction appears more reasonable. But Tesla does have a couple other factors working in its favor over RIVN at this point in time.
Not only does TSLA maintain superior fundamentals, such as profitability and positive cash flow in a challenging market, but shares also received a boost last week as Elon Musk noted strong demand for Tesla EVs.
Furthermore, on a forward-looking price chart, TSLA stock did confirm a key bullish double bottom during Friday’s session, which indicated stronger price action is in the works. RIVN stock, on the other hand, has been struggling a bit more during June’s market gloom.
Less than two weeks ago some Rivian R1S customers with preorders for the outfit’s anxiously awaited SUV were notified that delivery could be pushed out by months and into December.
And while some Rivian customers insist they’re impressed with their R1T pickup and they don’t mind the longer wait for the R1S, RIVN stock bulls could rightfully be having second thoughts about a breakout.
Exposure to Rivian Shares
As the weekly view of RIVN stock details, lateral overhead resistance of $32.79, which failed to clear a prior key low of $33.46 from March, needs to be overcome before a new bullish trend might reasonably take hold.
To be sure, the trading of stocks isn’t always as nice and tidy as we sometimes like to believe. For instance, as that relates to RIVN, shares could trade through resistance and still go on to make new lows. We just don’t know.
Taking Rivian’s bullish stochastics crossover at face value, waiting on a buy decision until a breakout triggers in anticipation of a larger upside reaction makes sense over a purchase right now. Regardless of how investors see things shaping up for RIVN stock, for buyers I’d hedge that enthusiasm with a modestly out-of-the-money bull call spread.
Verticals of this kind neutralize risk and leverage the upside, all while avoiding the hazard of buying bottoms in stocks that obviously have a lot more to prove than Tesla.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.