In a trade war or otherwise between the China and the U.S., there’s bound to be winners and losers. And on the price charts of Nio (NYSE:NIO) and Tesla (NASDAQ:TSLA), that exact battle is likely to play out. It’s also a battle where a pairs strategy shorting NIO stock and going long TSLA can help drive safer profits for bears and bulls.
It’s been and continues to be a big week for deal makers and deal breakers on the political front with Chinese officials negotiating in Washington this week. And the markets and shares of companies like Nio and Tesla remain on edge as investors await further official word or maybe a late night or early morning tweet.
The billion dollar question — and I’m not referring to the one being downplayed by President Trump following the release of his tax returns — is whether a trade deal can be reached. It may be tough given China’s announcement of extending preferential taxes for select tech companies.
Failing a last minute agreement, POTUS’ bluff of raising tariffs on $200 billion worth of Chinese goods this Friday becomes a ‘Made in the U.S.A’ reality. The impact, especially on global companies with offshore manufacturing like Apple(NASDAQ:AAPL) or Micron Technology (NASDAQ:MU), will be interesting to say the least.
Still, if like ADM ISI strategist Marc Ostwald, you appreciate that in this strategic game play between the world’s largest economies, a joker can turn up given POTUS’ “unpredictable, petulant and often bizarre reaction function,” it may be best to let the charts of China-based, EV automaker NIO stock and U.S. born and bred TSLA, to do the talking.
Trade War Loser: NIO Stock
NIO stock is the first of our two trade war candidates. Following what POTUS might call a disaster of an earnings report in March, shares have gone from racing higher to quickly careening downhill.
After technically failing to hold a key intersection of support lines NIO stock from around $6.00 – $6.50, shares have continued to press lower to new all-time lows. And it’s only gotten worse for the EV outfit’s stock.
Currently, the price action of the past few weeks has pushed shares below the critical $5.00 level which many funds rely on for an investing minimum threshold. At the same time, NIO has also formed a lateral congestion pattern which looks well-suited for shorting.
The recommendation in NIO stock is to short shares on a breakdown below $4.35. The entry is modestly beneath today’s tenuous technical support. For risk management off and on the price chart, exiting above $5.10 and even considering going long makes good economic sense.
Trade War Winner: TSLA Stock
To be fair, Trump might also declare TSLA stock’s recent earnings report a disaster. And in truth, there was little to defend. Bulls haven’t exactly been popping bottles of champagne following a massive loss and all-around, worse-than-expected results.
Nevertheless, on the larger time frame of Tesla’s monthly chart another technical intersection of trend-lines and key Fibonacci levels does have our attention. And that focus for the time being is from the long side as a bull.
The monthly view of TSLA stock has shares wedged in-between three longer-term layers of Fibonacci support and a pair of intersecting and important trend-lines. With stochastics also narrowly into oversold territory; Tesla is at a critical juncture, but one worth putting on the radar for potentially buying.
What I’d recommend is investors wait for TSLA stock to confirm April’s low remains intact. I’d then suggest buying shares only if a move above the May high of $258.35 is confirmed. This entry lines up reasonably well with Tesla’s post-earnings high of $259 and gives bulls a modest jump-start on buying into TSLA’s less-friendly (these days) uptrend at opportunistic and very supportive prices.
Disclosure: Investment accounts under Christopher Tyler’s management currently own positions in Micron (MU) and its derivatives, but no other 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.