Shares of Nio (NASDAQ:NIO) were downright explosive earlier this year. Nio stock was putting in a series of higher lows and ripped above $10 on optimism that its electric vehicle was seeing stronger-than-expected demand.
Then it reported earnings, and it wasn’t pretty.
Shares cratered, falling more than 30% from above $10 to $7 in just three trading sessions. A few weeks later, the stock was below $5, down more than 50% from its highs earlier that month. Hovering just below this mark now, it’s got investors who are looking for a cheap play contemplating a position. For the speculative buyer, perhaps it will pay off.
As it stands though, the charts do not look all that promising.
Trading Nio Stock
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Over the last week or two, Nio has been coiling under the 20-day moving average and below this $4.90 to $5 area. The latter had been support in March, but gave way and turned to resistance in April. That’s what has me feeling not-so-great about the chart right now.
That said, Nio did put in a lower high this month.
So what’s the trade? Interested speculators (because remember, this is a speculative stock) may not want to buy right now. However, a move over $5 could trigger a long position. Should the stock close above this level, it will propel Nio stock above the 20-day moving and $5 resistance.
It will open up a run to the 50-day moving average and possibly the $6 level, which is former range support. We flagged this level in March and told investors to be careful when Nio stock showed that it could not reclaim this level. Now it will have the opportunity to test it again, provided it can get over $5.
On the flip side, watch $4.70. Below it breaks Nio’s uptrend support and puts the May low of $4.57 on the table. That also puts the 52-week low of $4.43 on the table. New lows is not an attractive setup, particularly for a sub-$5 stock. Remember how Blue Apron (NYSE:APRN) has done?
That’s why I believe it would be wiser to buy into momentum rather than buy and hope a breakout occurs. Without a breakout, we get a breakdown and nobody wants that for their long position.
Bottom Line on Nio Stock
Investors who like Nio do so with the hope that the company becomes the next Tesla (NASDAQ:TSLA). Admittedly, the outlook seems rosy, as Nio makes some attractive-looking electric vehicles and as China is the world’s largest electric vehicle (EV) market. Worth pointing out is that Nio is a Chinese automaker.
Given the growth of China’s middle class and the government’s push toward clean energy, Nio seems like a worthwhile bet.
But there are certainly concerns. For starters, Tesla is now shipping its vehicles to China, while working to assemble its Gigafactory 3 production plan in Shanghai. In other words, Nio will soon have increased competition from the world’s largest EV producer right on its home turf.
Tesla’s not the only one, either. Daimler (OTCMKTS:DDAIF) via Mercedes, Volkswagen (OTCMKTS:VLKAY, OTCMKTS:VLKAF), Ford (NYSE:F), General Motors (NYSE:GM) and seemingly every other automaker is making a push into electric vehicles.
As we’ve seen with Tesla, profitability takes a very long time. Further, it takes a number of big investments over and over for a young company to stay ahead of its deep-pocketed peers. Tesla had to start from a harder spot, coming out of the Great Recession with essentially no EV infrastructure and little consumer interest. Tastes are changing through and governments are getting on board.
That’s good for Nio, although it still has a full plate with high costs and increasing competition. Plus, it lacks the Elon Musk factor. Love him or hate him, the man can sell a vision and that’s exactly how he raised so much money for Tesla over the years.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held no position in any of the aforementioned securities.
