Virgin Galactic stock price crash landing despite successful test flight

Summary:

Why did the Virgin Galactic stock price lose 17% yesterday following founder Branson's trip to space? The answer lies in SPCE raising $500m in new capital.

Why did the Virgin Galactic stock price lose 17% yesterday following founder Branson’s trip to space? The answer lies in SPCE raising $500m in new capital.

Virgin Galactic Holdings Inc (NYSE: SPCE) closed out Monday at $40.69, a loss of $8.51 (-17.30%).

Common sense suggests the SPCE share price should have benefitted from Richard Branson’s successful voyage to the edge of space on Sunday. However, the opposite proved true, and yesterday, Virgin Galactic suffered heavy losses in one-directional trade.

Sadly for investors, the commercial rocket firm will leverage the latest positive sentiment to raise $500 million via a share offering. Using Friday’s $49.20 finish will add a further $10 million shares to the available float of 164.6 million.

This dilution serves as a double-edged sword for SPCE holders. Firstly no investor likes to see their holdings watered down via a capital raise, regardless of the long term benefits. Secondly, a large part of Virgin Galactic stock price performance is due to the large percentage of short interest in the stock.

Clearly, making more shares available reduces the percentage of float in the hands of short-sellers.

The resulting price action has cratered SPCE below the $43.00 level that had provided a springboard to the price over the last two weeks. With major support now acting as resistance, the price could be in for a bumpy landing.

SPCE Technical Outlook

The daily chart highlights the significance of $43.00 for SPCE. Yesterday’s $40.60 closing price was the first time since June 25th that Virgin Galactic has finished below this threshold. Furthermore, the spike in volume suggests longs are spooked, which could lead to more liquidation in the short term.

Levels to watch on the downside is the horizontal support around $36.00, offered by a series of lows in early June. Followed by the tightly bunched key moving averages (50,100, and 200) between $30.00 and $32.00.

If the Virgin Galactic stock price stays below $43.00, these downside targets look like a probable destination. However, I would expect to buyers towards $32.00 given the improvement in long term fundamentals following Sunday’s light.

If SPCE recovers $43.00, the round $50.00 mark should follow.

For now, SPCE investors should expect volatility and be prepared for turbulence over the next few weeks.