Nio (NASDAQ:NIO) has quickly and quietly rocketed off its recent lows, climbing more than 25% in just a few trading sessions. It’s got many investors wondering if Nio stock is set to run even higher over the ensuing days and weeks.
One year ago, Nio stock went public on the New York Stock Exchange. With many dubbing it the “Tesla (NASDAQ:TSLA) of China,” it should come as little surprise that it’s been a volatile ride for the all-electric car maker.
While the company debuted two electric vehicles more quickly than Tesla delivered its Model S and X, it hasn’t generated the same fanfare that Tesla has. A big part of that, in my view, is thanks to Elon Musk.
Tesla versus Nio
Die-hard Tesla fans think of Musk as the saving grace to our earth. The one who will electrify the transportation market and slingshot the industry into the next century. All while fighting off short-sellers, FUD (fear, uncertainty, doubt)-writers and the evil auto and energy sectors.
Of course, his detractors have the exact opposite view: that he’s a lying narcissist pulling the wool over investors’ eyes whenever he so pleases.
Then there’s everyone else in between, who recognize Musk for what he is. An incredible entrepreneur who at times would benefit from putting his foot in his mouth and turning off his Twitter (NYSE:TWTR) account.
Love him or hate him, embrace him or tolerate him, it’s hard to argue the value Musk has brought to Tesla stock. While shares are down roughly 10% over the last five years, they’re up more than 600% in six-and-a-half years. Also, TSLA is up approximately 1,000% in the last 10 years.
Enough about Musk and more about Nio stock.
All of this is to say that NIO doesn’t have a Musk. Someone that can sell their product, that can create hype, generate headlines and get people taking notice. In a capital-intensive, low-margin business, that’s exactly what a company like Nio needs. Someone who can get investors, customers and observers excited about their product.
That’s not to say NIO or others can’t succeed without a Musk, but it makes life much easier.
Trading Nio Stock
Both the 20-day and 50-day moving averages are now trending higher for NIO stock. More importantly though, Nio is above downtrend resistance (blue line). Last month, this trend line squeezed Nio below $3, eventually sending it down to a low off $2.58 at the start of the month.
However, that move was very important, at least as far as short-term developments go. When Nio stock bottomed at $2.58 and rallied, shares had notched yet another higher low. This is shown on the chart via purple arrows, as well as a purple uptrend line.
While a series of higher lows is not necessarily a screaming buy signal, it is a bullish technical development. The only problem? The stock has been decimated over the past year. In 2019 alone, the Nio stock price is down 50%. From its highs, it’s even worse, down a catastrophic 72.5%.
So, what do bulls need to see now? They want to see Nio stock maintain above the 50-day and 20-day moving averages, and most importantly, not break the trend of higher lows. If shares can continue higher, $4 may be in the cards.
Bottom Line on NIO
The technicals are starting to behave better for Nio stock; now it needs the fundamentals to improve as well.
There are talks about a bottom in China’s struggling auto market, while the company just raised $200 million in convertible debt via CEO William Li and Tencent (OTCMKTS:TCEHY). That’s promising and should help fund Nio’s capital-intensive business as it tries to turn free cash flow positive.
Losses are still big for Nio and that’s to be expected from an automaker. Again, just look at Tesla. Despite its global presence, the company still has trouble churning a positive bottom line.
Speaking of its global presence though, Tesla is working to complete its Gigafactory 3 in China. While the country is the world’s largest electric car market, increased Tesla competition could make it harder for Nio to win over customers.
The bottom line: for those that are bullish on Nio stock, the chart is beginning to shape up. If the fundamentals improve, shares could go on a run. Below $2.50 causes concern. Remember, this is still a speculative holding.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
