On Tuesday, Nio (NYSE:NIO) stock erupted higher, climbing 37% to $2.34. I have covered Nio stock for a long time, and while shorting NIO at this low price obviously won’t be too lucrative, being long the shares just hasn’t made sense either.
But is Tuesday’s rally enough to change the tune for Nio stock and shift momentum back to the bulls?
Unfortunately, there’s still quite a bit of overhead resistance that Nio stock has to push through. On top of that, the company’s fundamentals haven’t really changed. Since the shares’ technicals aren’t bullish and the company’s fundamentals aren’t upbeat either, Nio stock is still a tough name to buy at this point. That’s especially true now that the shares are 40% more expensive than they were just the other day.
What Caused the Spike?
Nio stock price ripped higher after it was reported that NIO is working with Mobileye. Now a part of Intel (NASDAQ:INTC) after being acquired by the chip maker in 2017, Mobileye will work with Nio to build vehicles with autonomous driving features and capabilities.
The autonomous driving game is still in its early stages, but many believe that it will be a powerful driver of revenue, efficiency and safety in the future. That’s why Nvidia (NASDAQ:NVDA) has put so many resources behind developing its own solutions for autonomous driving.
But why does Nio working with Mobileye suddenly make Nio stock worth roughly 40% more? Are Nio’s sales and earnings going to immediately increase? Has its balance sheet been meaningfully improved by the deal?
The deal could potentially boost Nio’s sales down the road. But at least on the surface, the partnership doesn’t seem to be worth a 40% surge in Nio stock price.
A Reaction to Tesla
Nio’s deal with Intel seems like a reaction to Tesla’s (NASDAQ:TSLA) presence.
Tesla’s battery factory in Shanghai, China is in the early stages of production. For Nio, a struggling China-based electric car maker, Tesla’s entrance isn’t exactly good news. Tesla has better financing, more flare and a more dominant position in electric vehicles. Not only that, but its Autopilot feature is one of the most advanced driver assist systems available today.
Is Nio’s partnership with Mobileye an attempt to fight back against Tesla? Perhaps, although it’s likely too little, too late for Nio. At the end of the day, the agreement with Intel doesn’t immediately move the needle for NIO, and that’s what matters for a sub-$5 stock.
Trading Nio Stock
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While the one-day gain of Nio stock price was impressive, Nio stock does not have an impressive track record. Even with the 37% gain, the shares were still down a whopping 67% in 2019.
Think about that next time you’re sitting on a losing position and don’t want to cut ties simply because it will mean the paper loss will turn into a realized loss. Seriously. This stock rallied 40% in one day and is still down over 60% in 2019.
But how do we trade Nio stock now?
Going forward, see if Nio stock price can stay above $1.80. If it can do that, perhaps it can begin to repair some of the damage on its charts. If NIO continues to push higher, see if it can reclaim its 50-day moving average. If the shares climb over $2.60, perhaps they can fill their gap toward $2.75.
The Bottom Line on Nio Stock
There are so many stocks to buy out there that are better than Nio. To be fair, there are worse ones, too. And while one-day gains in excess of 30% sound appealing, remember that Nio stock price is below $5 for a reason.
The Mobileye announcement is good for Nio. But I don’t believe it will have an immediate impact on the company’s vehicle sales or its revenue. Perhaps it will help NIO burn less cash. Still, Nio stock doesn’t seem worth the risk at this moment.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long NVDA.
