Archer Aviation (ACHR) stock price suffered a harsh reversal as the number of investors shorting it jumped. After being one of the best-performing companies in Wall Street, it has dropped by over 26% from its highest level this year. This pullback has brought its market cap to about $4 billion.
Why ACHR stock price jumped in November
The Archer Aviation share price skyrocketed in November as investors rotated back to companies in the Electric Vertical Takeoff and Landing (eVTOL) industry.
Joby Aviation, the biggest player in the eVTOL industry soared to $9.33, up by over 94% from its lowest level this year. Similarly, Ehang share price jumped by almost 30% in the same period.
The surge happened after the industry received support from an analyst from Needham. In a statement, the analyst hinted that the sector was significantly undervalued and that the companies would ultimately bounce back.
The analyst remained optimistic in Archer Aviation and Joby, which he believes are better positioned to become market leaders in the industry. Besides, the two companies have raised substantial sums of money and have received most of the certificates they need to start commercialization in 2025 and 2026.
The analyst recommendation then led to the Fear of Missing Out (FOMO) in these eVTOL companies. In technical analysis, these stocks simply moved into the markup phase of the Wyckoff Method. This phase is characterized by higher demand for an asset.
Why the ACHR share price has crashed
There are three potential reasons why the ACHR stock price has nosedived this month. First, the stock crashed as it entered the distribution or the markdown phase of the Wyckoff Method. In most periods, this is one of the most bearish parts of an asset.
Second, there are signs that investors have started to short the company as the short interest has risen significantly in the past few weeks. According to SeekingAlpha, Archer Aviation’s short interest has risen to almost 20%, meaning that a fifth of its outstanding shares are held by short-sellers.
These short sellers are likely concerned about Archer Aviation’s untested business model and the fact that it will need to dilute its shareholders to fund its operations.
Archer’s fundraising from Stellantis had clauses of dilution. As part of the agreement, Stellantis will provide it with manufacturing funds and recoup it through quarterly share distributions.
The most recent results showed that Archer Aviation’s net loss surged to $115 million from $51.6 million a year earlier. Its adjusted EBITDA also rose from minus $64.8 million to minus $93.5 million in the last quarter. It ended the quarter with $501 million in cash, meaning that another cash raise cannot be ruled out.
Many short-sellers also believe that Archer Aviation’s business is untested and that there is uncertainty about whether it will be successful in the long term.
Read more: Archer Aviation: the next millionaire-maker stock?
Archer Aviation stock analysis
The daily chart shows that the ACHR share price made a strong comeback in November. This recovery happened after the stock formed a falling wedge chart pattern, a popular bullish sign.
It even formed a golden cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other. The stock also moved above the key resistance at $7.45, its highest swing in August 2023.
Archer Aviation has formed a bearish engulfing pattern, a popular reversal pattern. This means that it could drop and move to the 50-day Exponential Moving Average point at $4.57, which is about 37% below the current level. More gains will only be confirmed if it rallies above the year-to-date high of $9.84.
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