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Is the Fall in Virgin Galactic a Buying Opportunity?

Virgin Galactic gets hammered on Monday after a failed test flight. Will support hold or do buyers need to step aside?

Virgin Galactic  (SPCE) - Get Virgin Galactic Holdings Inc Report has been on fire. From the November low to the high on Dec. 9, shares were up more than 102%.

However, we’ve seen some wavering in the stock price since, as Virgin Galactic shares struggled to get above $34.

Over the weekend, the company announced that its test flight did not go as planned, failing to reach space. The rocket motor “didn’t fire due to the ignition sequence not completing.”

Bulls have been growing optimistic that the company was on the cusp of kicking off its space tourism business.

That thesis is suffering a setback on Monday and so is the stock. Shares were down about 15% so far on the day, after falling 17% at the low. Is this dip buyable?

Trading Virgin Galactic

Daily chart of Virgin Galactic stock.

Daily chart of Virgin Galactic stock.

Obviously the long-term bulls thesis did not disappear overnight - but the momentum might have.

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I say “might” because the stock is still holding support where it’s supposed to. Granted, it’s happening on a tough day for the stock, but it’s holding nonetheless.

Shares are trading down into the $26 to $28 area, which was resistance in March and July. Finally in November, Virgin Galactic stock was able to break through this area and find it as support.

When resistance turns to support, it’s a bullish development investors should pay attention to. Now we need to see it hold.

Further, shares are declining right into the 21-day moving average, which is acting as support upon its first test since igniting the stock higher in November.

The issue here is risk. Because if support fails to hold, Virgin Galactic could unwind rather quickly. If it takes out Monday’s low at $26.44, the 50-day moving average may be its next destination all the way down near $23.20.

Below that and the $20 to $21 area may be next. It all depends on whether it has any momentum left or if bulls will completely step aside. 

On the upside, $30 is a notable level bulls will want to see tested should the rebound gain any steam. Above $30 will have investors looking for a gap-fill up toward $32.

Unless there is promise of another test flight succeeding in the near future, I imagine it will be hard for Virgin Galactic to retest $34 resistance, let alone clear this mark. It was resistance multiple times last week and the two times it was able to get above it, the rally was short-lived as sellers hammered it lower (purple arrows).