When a stock falls as much as Nio (NYSE:NIO) has, it gives rise to questions about the company’s viability. In this case, NIO stock is broken and the long-term outlook for the company is uncertain. The Nio stock price fell from its high of almost $14 per share a year ago to near $1.50 today. This has happened over a long period of lower highs and lower lows. But over the last month it may have put in an interim bottom.
The reaction to the September earnings report was a disaster. Investors sold Nio stock in droves and it fell from $2.70 to a low of $1.20 per share. But then Nio quickly recovered and has held 15% above its low since then.
However, NIO stock continues to set lower highs. The range has tightened so much that a move is coming. And therein lies the opportunity for both bulls and bears.
The fundamentals on NIO remains iffy at best. It still loses money and it sells at 1.5 times sales. This is somewhat in line with Tesla’s (NASDAQ:TSLA) metrics from the top-line perspective. Moreover, the segment of electric cars is alive and well. We recently saw an impressive performance from TSLA, for example. And all the major auto manufacturers are diving into electric cars and trucks with both feet. So the EV segment is here to stay, and this time it has global momentum.
Despite all this, NIO stock still struggles more than it ever has. The broad assumption is that there’s something fundamentally wrong with the company.
A Move Is Coming in Nio Stock
But today’s opportunity is purely technical, so the potential trades are tactical in nature. Therefore, traders have to depend more on the charts than on actual company results and headlines. If the bulls are able to break above $1.50 then they can invite momentum buyers for another 30-cent rally. There will be heavy resistance at $1.80 per share if and when NIO gets there.
Conversely, the NIO bears also have the opportunity to continue beating up on the stock. If they succeed in taking NIO below $1.36 then the all-time low would be in question. Each of these lines would be negative catalysts for the stock and the bulls will continue to be in trouble.
The bottom line is that NIO has become a trading vehicle — pun intended — rather than an investment. Whenever a segment is thriving but a company is struggling within it, that’s a sign that there is something wrong with the fundamental setup. Traders’ conviction in the long-term prospects has to be low. NIO has all the tailwinds it needs from a macroeconomic perspective yet it fails to perform.
Now it is important to reiterate that this is a tactical bet on the charts — so don’t turn these trade opportunities into investments.
In addition, the equity markets have just set new all-time highs and NIO is still mired at its all-time lows. If the overall markets correct for whatever reason, this will add downside pressure to the stock. A breakout opportunity will quickly become a breakdown. There is no room for emotions when trading stocks like Nio. Unfortunately, this is easier said than done because these are the very stocks that are the most hotly debated on Wall Street.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.