Despite the recent turmoil, the PowerShares QQQ ETF (NASDAQ:QQQ) is still up 22% this year, but is up just 2% over the past 12 months. For Nio (NYSE:NIO), it’s been a far worse run. Nio stock is down more than 50% both this year and over the trailing 12 months.
Lower-than-expected growth, high cash burn and worries over the Chinese auto market have all been negative catalysts for Nio. For a while, Nio was being called the Tesla (NASDAQ:TSLA) of China. Thus, it doesn’t help that Tesla has been struggling too, down 33% in 2019.
The all-electric car maker Nio was supposed to enjoy robust demand in the world’s largest electric car market. That hasn’t really been the case. And with Tesla making rapid progress on a new production facility in Shanghai, there are fresh concerns regarding Nio’s staying power.
The charts also present another worry, this of the make-or-break kind.
Trading Nio Stock
In June, the Nio stock price finally put a bottom, carving out a nice base near $2.50. While down some 80% from its highs a few months ago, the carnage finally ended. After some better-than-expected figures from the company, NIO quickly climbed to $4 in July.
Since then, Nio stock has been making a series of lower highs, forming a downtrend line of resistance (blue line). Shares have also failed to hold the 50-day or 20-day moving averages as support.
In short, the name has been weak after its initial big jump, where shares ran some 60% in just a few days. Those are the types of moves you can see with sub-$5 stocks, though.
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It’s not all doom and gloom, however. The Nio stock price has continually found support near this $2.75 area. Even amid all the trade war drama between the U.S. and China — which was really weighing on Chinese equities like Alibaba (NASDAQ:BABA), JD.com (NASDAQ:JD) and others — this support level has held up.
That’s the good news. The bad news is that Nio stock is trapped in a descending triangle pattern, which is a bearish trade setup. With resistance squeezing NIO against support, bulls will really need to step up to the plate. If they don’t and support gives way, then $2.50 base support will be called upon once more. Below it and NIO is officially in no man’s land.
If bulls can push Nio stock over resistance, their next task is to get it north of the 50-day moving average. Above both and investors may look to squeeze shares as high as $4, up about 27% from the 50-day moving average.
Valuing NIO
Just because NIO is off its lows doesn’t mean it’s doing all that well. Shares are still down 75% from its highs made last year and 71% from this year’s highs.
The Chinese auto market used to be a pillar of strength, enjoying decades of growth. That’s not the case anymore. Monthly auto sales declined for the 13th straight month in July, adding to the recent turmoil in the space. Last month, sales fell 4.3%, which is typically bad news to most observers. However, some view it as a possible turning point in the market.
That will need to be the case if Nio wants to have a chance at making a comeback. That’s especially true given its recent news. Amid the softness of the Chinese auto market, Nio delivered just 837 vehicles in July. Ten days later, the company announced that it will slash its workforce, cutting about 1,200 employees as it looks to get down to around 7,500 workers.
Lastly, company co-founder Jack Cheng announced that he’s leaving NIO a few weeks ago. It hasn’t been a good stretch and having your co-founder walk less than a year after going public isn’t a good look.
While Tesla has had its struggles, it has a heck of a promoter in Elon Musk. It’s allowed Tesla to raise money countless times and with an elevated share price, it’s not hard to do. At sub-$5 though, it’s a tough task for Nio.
So, what’s the bottom line? Those that feel the need to play this speculative holding, wait for the chart to tip its hand.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Kenwell did not hold a position in any of the aforementioned securities.
