Nio (NYSE:NIO) news is driving shares higher. The question is, are investors right to buy NIO stock on this surge? Let’s see what’s behind the price excitement off and on the price chart and whether its shares deserve to be parked in your portfolio too.
Unlike Tesla, though, this China-based competitor’s shares have continued to face mounting losses and problematic debt in 2019, while TSLA stock appears to have turned the corner. And those differences are very evident on the price charts of both Tesla and Nio shares.
Not that being a TSLA stock investor has been easy in 2019. It hasn’t. But with shares off just 4% after rallying 77% off its June low, bullish investors are making a point that can’t be simply dismissed.
At the same time, NIO shares are off 63% this year. The stock also hit an all-time-low of $1.19 just last month. Still, on Tuesday, shareholders were given a glimmer of hope. Short interest of 18% is a potential warning while two catalysts sent NIO up about 37% on the session.
Jump-starting the action, Nio shares were modestly bid in the premarket after the company announced October deliveries climbed 25% to 2,526 vehicles over September’s count despite the challenge of a seven-day national holiday at the beginning of the month. Then news of a collaboration with Intel’s (NASDAQ:INTC) Mobileye unit to develop automated and autonomous vehicles for the Chinese market and potentially other regions as well, sent the stock soaring. The gains have continued premarket on Wednesday.
NIO Stock Weekly Chart
Given the very real business challenges Nio still faces, it’s our contention that shares need to be viewed as a more speculative investment until proven otherwise. And notwithstanding Tuesday’s large share spike, the NIO price chart still emphasizes the fact one day doesn’t make a trend.
On the weekly price chart we can see NIO stock’s jump in price has broken one weekly resistance line dating back to March. Stochastics on this time frame have also quickly crossed and turned higher within an oversold condition. Both are favorable, but there’s still work to be done before most investors might consider sinking funds into shares.
For my part, I no longer see NIO stock as a timely short. Back in September I wrote about gaining short exposure with a February-dated put position which worked quite well as Nio stock cratered 40% into its October all-time low. But given the very iffy fundamentals, I’d advise waiting until the company reports its next earnings before re-evaluating Nio as a stock to purchase.
Bottom line, unless you’re open to more speculative investments (and even if you aren’t in agreement with waiting for improved clarity from future earnings reports), Nio needs time to make the technical commitment of higher highs and higher lows associated with an uptrend. Then more durable and significant gains in excess of a rather puny 49 cents could see the light of day.
Investment accounts under Christopher Tyler’s management currently do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.