$Nikola (NKLA.US)$ surged over 18% higher on Monday. The sharp rise caused the stock to break up from a sideways pattern under which Nikola had been trading since Oct. 10.
The higher prices came after Nikola announced it has partnered with KeyState Natural Gas Synthesis to create Pennsylvania's first low-carbon hydrogen production value chain.
The two companies plan to enter into a definitive agreement at a later date to expand the hydrogen supply for Nikola's zero-emissions heavy-duty cell electric vehicles (FCEVs).
Nikola has been heavily beaten down, having declined about 96% from the June 9, 2020, all-time high of $93.99 and about 76% from the Nov. 1, 2021, 52-week high of $15.56 to trade at around the $3.64 mark as of Monday.
The stock may be in for a larger reversal to the upside, especially if Nikola can confirm a new uptrend over the coming days.
The Nikola Chart: Although Nikola negated its sideways trading pattern by printing a higher high on Monday, the stock hasn't confirmed a new uptrend with the formation of a higher low.
Over the next few days, bullish traders can watch to see if Nikola prints a bullish reversal candlestick above the $2.84 mark, which could provide a solid entry for those who aren't already in a position.
A spike to the upside was the most likely scenario. While Nikola was trading flat in the horizontal pattern, the stock's relative strength index was making a series of higher lows, which created exaggerated bullish divergence. That divergence has now started to correct as Nikola has trended higher.
If Nikola closes the trading day near its high-of-day price, the stock will print a bullish Marubozu candlestick, which could indicate higher prices will come again on Tuesday. The second most likely scenario is that Nikola will print an inside bar on Tuesday to consolidate Monday's sharp spike.
Bearish traders will want to see big bearish volume come in and drop Nikola back into the sideways range under $3.24, which could indicate Monday's surge was a bull trap.
Nikola has resistance above at $3.93 and $4.52 and support below at $3.59 and $3.24.