$LCID: Short Cover Play
Short-Cover Thesis: Lucid Group, Inc (LCID)
Figure 1: Profile View
Electric vehicle maker Lucid Group, Inc recently saw draw down of -35% from its November highs as short banked on the back end of a SEC investigation, liquidation risk into deleveraging cycle, overall U.S. market correction, and a 1.75 billion convertible senior note offering. On Friday after the U.S cash close, news came out that LCID will be added to the NASDAQ 100. $LCID has decently high short interest and after a -35% draw down from highs, shorts will likely cover here (for the time being).
Being added to the NASDAQ 100 index will increase liquidity & open the stock to a broader set of investors. Passive & actively managed index funds that benchmark to the NASDAQ 100 WILL buy the shares. Shorts know this and will get out of the way.
Figure 2: Stoyu I. Ivanov, San Jose State University - Average Daily Excess Stock Returns of Added to or Deleted from the S&P 500 Constituent Firms Relative to the (NYSE / AMEX / Nasdaq / ARCA) CRSP Value Weighted Return, 60 Days Before and 90 Days After Event, After October 1989.
Stocks introduced to the index tended to outperform the market by an avg of 1% from 6 days pre-announcement to post-index inclusion. If you are short, this would force you to lighten up here. Index inclusion could also erase the fear of recent investigation, assuring that they wouldn’t add a company to NASDAQ that has a problem with SEC. This was part of the short thesis, now that the thesis has played out, they should take profits. The 1.75 billion convertible senior note offering will allow Lucid Group, Inc to increase manufacturing. The initial reaction was -18% off this news. Shorts banked.
From a technical view, (refer to figure 1) LCID saw a gap-up on Friday. It quickly got faded as it rotated out of balance area. Traders drove it down where it caught bids near $36 amid short covering. Pre-market posted low nodes near the $35 level where the level acted as a vacuum as there wasn’t a lot of liquidity down there. If this buying were to continue, I would look to trim size around 12/8 POC at $44, a gap that should be filled.