QuantumScape stock price has staged a strong comeback in a GameStop-like fashion. QS shares soared to a high of $14.22, up by over 315% from the lowest point this year, making it one of the best-performers in Wall Street. This article explains why it has jumped and why it will plunge soon.

Why QuantumScape stock surged

There are two main reasons why the QS stock price has surged in the past few weeks. First, the surge ignited after the company announced that it had achieved a major milestone in the scale-up of its production capabilities.

In this, QuantumScape said that it had managed to integrate its advanced Cobra separator process into its baseline cell production. Cobra will enable faster and more energy efficient production with a small equipment footprint compared to Raptor, its previous process. The company said:

“Cobra is a step-change innovation in ceramic processing, enabling a major improvement in productivity compared to Raptor, which was already a considerable advancement compared to the previous generation.”

The company hopes that this process will help it become a big force in the solid-state battery industry, which analysts believe will be critical in the electric vehicle industry.

These batteries are better than the existing ones because they charge fast and have a longer range.

Second, the QS stock price surged because of a short-squeeze among investors because it is one of the most shorted companies. Data shows that the company has a short interest of 13.6%, which is higher than most companies. This short-squeeze resembles that of GameStop and AMC in 2021.

Risks to the QS stock rally

There are three key reasons why the QuantumScape stock price may crash soon. First, history shows that companies that go through a shows that stocks that go through a short-squeeze often plunge after the momentum fades. For example, GameStop and AMC Entertainment remains much lower than their peak in 2021.

Second there are signs that QuantumScape’s insiders are selling the stock, which is a red flag. These insiders have sold over 5.6 million shares in the last 12 months. 

Further, the company’s battery technology is facing substantial competition from Chinese companies. BYD and CATL have come up with a battery that can charge in 5 minutes and travel for hundreds of miles.

Additionally, QuantumScape’s business relies mostly on Volkswagen, which is also a major investor. The risk here is that the company may opt for other battery suppliers since QuantumScape will take time to bring its batteries to scale.

QuantumScape stock price analysis

QS stock chart | Source: TradingView

The daily chart shows that the QS stock price also surged for a key technical reason. It formed a falling wedge pattern, a popular bullish reversal sign. 

The stock is at risk of a reversal because it has become highly overbought, with the Relative Strength Index (RSI) has jumped to 90. Other oscillators have also surged in the past few months.

The other risk is that it has deviated substantially from the moving averages. This means that it may soon go through a mean reversion, where an asset moves back to its historical averages. This means that it may drop to $10, the highest swing in January last year.

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