Management will soon have the opportunity to give Nio (NYSE:NIO) stock the push it needs to trigger a continuation rally so it can dig itself out of this hole, but it won’t be easy.
Thanks to companies like Tesla (NASDAQ:TSLA) and NIO, e-cars are gaining momentum on the internal combustion engine. For decades the idea was silly, and for some reason manufacturers made their electric cars look odd.
Now the cars are gorgeous. As a result, the electric car market is growing rapidly and gaining serious momentum. Even the major global auto manufacturers are joining the e-car movement. Most notably Porsche with its Taycan debut.
NIO operates in China, which is a huge market for electric vehicles. While it is growing its business, however, its stock has gone the wrong way. Sporadically, NIO stock rallied fiercely especially after a TV special that propelled the stock to almost $11 per share, only to fail miserably mere hours later. Now, six months later, the NIO stock price is 70% lower and mired just above its all-time lows.
From here, it is best to only trade Nio stock. Otherwise, one has to own it for the really long-term hopium of a comeback. For that there are two necessary assumptions. The first is that electric cars in general will succeed in becoming mainstream. This will probably require the help of legislation on the global level and there are signs that this is possible. The second assumption is that NIO stock will succeed in its own mission inside the overall market success.
For shorter-term, there are clues for trading the stock from the charts. In my last write-up, I noted that the NIO stock was broken but the company still had a chance. While this is true, it is little consolation for those stuck in the stock from higher levels. But if someone hung on this long there is more upside potential than downside risk, so it’s probably too late to exit now.
There is an earnings report coming soon which adds another temporary layer of risk as recent reactions to those have been negative on Wall Street.
NIO Stock Headed Into Wild Action Soon
Sour investment sentiment alone is not an indication of doomsday forecast for the company. Case in point: TSLA stock is also miles away from its highs and so far the company is still executing on its expansion plans. So NIO stock woes are not necessarily a sign of a dying company. But it is important that management delivers some good operational news so that investors don’t capitulate out of the stock in a week when they report earnings.
Meanwhile, September has been good for NIO stock as it bounced hard off of the $2.60 per share low. This also marks the point of control for the period, meaning that this is where buyers and sellers fought the hardest, so it is supported until proven otherwise.
Unfortunately the NIO stock price is now headed into resistance because of a price cluster near $3.50 per share. If I’m not yet long the stock, I would wait until the bulls are able to push prices above that before chasing it. This is also a place to book some profits for those long off the $2.50 base.
Depending on what happens today with the news from Saudi Arabia and how it affects oil and electric car stock prices, there could be technical opportunity in NIO stock. If the bulls are able to establish the $3.20 as a base, they could extend this rally to retest $4 which was a recent failure point from early July. Otherwise, I expect another dip to establish a better base closer to $3 per share.
Nio Stock Bottom Line
This is just part of normal price action in any stock and says nothing about NIO itself. So the best way to trade its stock here is to trade off these lines that matter on the lower time frames. The idea is to wait for the breeches as they happen and chase them in that direction.
The alternative would be for investors to buy NIO on a leap of faith into the next earnings report hoping that the company gives Wall Street reasons to celebrate with a rally. Otherwise there’s no guarantee that the recent lows will hold. Having a low $2.50 stock price doesn’t mean it is cheap because it can go lower. Especially if management fails again in its quarterly goals.
Click to EnlargeIt is important to not get emotional about an investment. For some reason, electric car stocks draw a lot of emotions on Wall Street. Using the charts helps separating feelings from strategy. There is great information in charts as price action always unfolds to historical patterns regardless of headlines. As they say, “price is truth,” and in the end that’s the only thing that matters here.