Virgin Galactic (SPCE) Stock Price: Share dilution after spaceship launch, 2-month bull run over for now

• SPCE stock dropped more than 17% on Monday.
• Virgin Galactic announced a $500 million share sale after successful spaceship launch.
• SPCE shares appear to be in downtrend.

Virgin Galactic’s (NASDAQ: SPCE) manned space flight on Sunday was expected to light the rocket burners on the stock come Monday. Unlike the successful test launch, however, the announcement of a $500 million share sale sent SPCE shares hurdling back from the thermosphere.

SPCE stock: Shareholders not on board with dilution

Unlike other much-vaunted meme stocks like AMC Entertainment (NYSE: AMC), Virgin Galactic’s share sale has been treated with disdain by the market. SPCE shares closed down an astronomical 17.3% on Monday, July 12, despite the fact that they trade up as much as 8% in the premarket. It is unsurprising that the space tourism company would decide to raise capital. After all, its current test flights bring in very little in terms of revenue and nothing in terms of profit.

It was surprising to many, however, that Virgin Galactic announced the sale so soon after their PR win – timed to take the wind out of competitor Blue Horizon’s launch later this month. Blue Horizon is owned by Jeff Bezos of Amazon fame (NASDAQ: AMZN:), making this particular space race about billionaire qua billionaire rather than capitalism versus communism. SPCE’s flight was its first fully-manned mission and was used to check for quality control.

Virgin Galactic will need new cash to complete two new test flights later this year before beginning commercial flights next year. Space tourism could bring in $3 billion in revenue annually by 2030, according to UBS, the Swiss investment bank. Of course, an unexpected share sale may spook investors who realize the long road to profits may be paved with a few more share dilutions out of necessity. At the close Friday, SPCE shares were up 107% YTD and 245% from the May 11 low, so it is unsurprising that a chunk of the market decided to take profits.

SPCE technicals: A descending trend begins

Seeing that Monday’s wipeout, which was so strong that temporarily SPCE trading was halted, closed at $40.69, it would seem likely that a downtrend would continue. Daily candle support had been quite strong just above $43, but sellers broke through the barrier quite easily. Additionally, another piece of evidence pointing to a continuing downtrend is the lower high compared with the $62.80 all-time high from February.

A descending price trend seems to have formed with June 28’s pinnacle at $57.51 forming the beginning of the top trend line and drifting down seamlessly to Monday’s high of $50.75. On the lower end, June 29’s close at $47.02 is the beginning of the trend line that drifts down to the Monday close. If this is the case, then this week may see a rebound back toward the region near $48. However, the 9 and 20-day Simple Moving Averages (SMAs) that SPCE crashed through on Monday may now act as barriers to the upside. At the time of writing, they sit at $43.15 (9-day) and $46.11 (20-day). 

Support from February 2020 at $37.18 may still have power. If not, support at $35 from early June, as well as resistance-turned-support from February and December 2020 at that same level give it a greater sense of strength.

SPCE daily chart

In order to break out of these doldrums, SPCE stock would need to buck the top trend line near $48 and then flout the July 8 close at $52.69. This seems unlikely, but when a volatile company is literally trying to soar above the clouds, anything can happen.