A mixed earnings report for EV auto upstart Nio (NYSE:NIO) has turned into a damaging, but non-fatal technical car wreck this week. Now, with NIO stock near “long-term parking” on the price chart, it’s almost time to take a test spin in shares. Let me explain.
Let’s start by saying Nio is not Tesla (NASDAQ:TSLA). Whether that’s a good quality or not has still yet to be determined. Nevertheless, “China’s Tesla” comparisons by Wall Street’s marketing team aren’t surprising given the outfit’s Shanghai-based domicile and have been popular since NIO stock came public in late 2018.
The one thing that is certain right now is a bump in the road courtesy of this week’s earnings release has sent NIO stock crashing. Shares are off roughly 30% after the company warned with weak guidance and announced it is scrapping plans to build its own production facility due in large part to disappointing demand for its flashy Tesla-like SUV in the world’s biggest EV market.
Still, with the damaging but non-fatal report in hand and a cautious Wall Street steering shares of NIO stock towards some safer long-term parking on the price chart; it’s time to put Nio on the radar for a buying.
NIO Stock Daily Chart
Earlier this week, NIO stock looked ready for some “vroom, vroom” price action to the upside. Despite shares having tacked on roughly 50% from its IPO, a few months of base building on the price chart had resulted in Nio clearing the bulk of its congestion and forming a small, bullish consolidation wedged between the 50% and 62% retracement levels. Then came earnings.
The described bullish price pattern effectively went up in smoke as NIO stock’s aggressive bearish gap broke narrowly below the aforementioned technical supports and continued to motor on to the downside. The good news is the worst is likely over technically. And for contrarian-minded investors wanting to take a spin long in Nio, shares are closing in on long-term technical support.
What constitutes long-term is relevant of course. Bottom line or in this instance, NIO stock’s squiggly price line has only been trading for six months. Still and as the provided detailed daily view of Nio shows, the area from $6-$6.50 looks like a fairly good spot where shares could find a spot to park before heading higher.
With shares currently trading near $7, the assessed parking zone isn’t too far removed from the action. However, given NIO stock has traded as low as $5.35 as shares debuted in September and $5 is a whole number of some importance to many institutional investors; I’d also wait.
My recommendation is to put NIO stock on the radar for now and wait for a bullish weekly candlestick reversal pattern to emerge. In our view there’s simply too much exposure for today’s contrarian investor to simply buy NIO stock and hope immediate support will hold. Or worse, have to patiently sit through and cross their fingers the next and lower band of technical price support will find successful long-term parking for bulls.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
