In today’s market, it seemingly doesn’t get any riskier than a name like Nio (NYSE:NIO). But where there’s purported to be grave risks off and on the price chart, there’s also potentially even great rewards in Nio stock. Let me explain.
It could be over for the market’s current bull-run. In fact, the broader averages are in correction territory on the heels of last week’s panic selling which took the broad-based and large-cap S&P 500 index down 11%. Further, all the major market averages are showing corrective declines that are closer to 20%. That’s disturbing for many investors as 20% is the line in-the-sand where bear markets are said to begin.
The irony or at least other interesting and notable price action is overseas in markets. Moreover, the focus is on China and what’s become ground zero for the coronavirus. Despite the epidemic being the driving force behind the more leery and weary U.S. investing environment, the COVID-19 outbreak has taken much less of a toll on many Chinese stocks.
By comparison to the S&P 500, last week the iShares China Large-Cap ETF (NYSEARCA:FXI) traded off by less than 3.25%. It’s not a small decline by any means. Still, the price drop was nearly 340% less than its U.S. equivalent. At the same time, while many U.S. stocks dependent on a healthy Chinese market for business, such as Apple (NASDAQ:AAPL) or Microsoft (NASDAQ:MSFT) cratered even harder following sales warnings, by contrast small-cap and luxury EV upstart Nio was up nearly 1.25% on the week.
Amid the panic, Nio’s price action is the kind that should have investors’ attention. What’s more, after examining the price chart of NIO stock and finding more signs of life, it’s our view that shares could be ready for allocation to the portfolio in the coming days.
Nio Stock Weekly Chart
Source: Charts by TradingView
It would be hard, if not misleading to make promises that Nio stock is the next AAPL stock or more aptly, the next Tesla (NASDAQ:TSLA) for that matter. Still, there is the company’s relative valuation of just over $4.5 billion and similar price-to-sales ratio to TSLA stock to consider. There’s also Nio’s comparable financial challenges to earlier times in Tesla which had bears on the prowl and clearly wrong.
It’s enough to believe there could there could be a way through the coronavirus for Nio and potentially an even bigger payoff for investors longer term. And after showing a rare and market-bucking healthy pulse last week, NIO should be on the radar for purchase.
Technically, as our well-doctored weekly chart shows, shares of Nio have put together an uptrend since hitting an all-time-low last September. Thus far, the rally has met resistance from intersecting price lines and Nio’s lifetime 38% retracement level on a couple of occasions. Optimistically though and without being too hopeful, the third challenge of resistance could be the charm for bullish investors.
Given Nio’s higher volatility and stochastics residing back inside neutral territory, I’d recommend a modified “early” purchase of shares on a rally through $4.75. The expectation is this entry is high enough within the stock’s loose congestion pattern that momentum will finally prevail and take Nio stock toward a challenge of $7.50 where the 50% Fibonacci level rests. That would be a windfall, as well as a great opportunity for taking profits.
Bottom line though, to ensure investors don’t inadvertently become crash test dummies, I’d advise setting an initial stop-loss beneath $3.95. That exit looks like very smart business off and on the price chart, and maybe more so given a bear market that’s had a death grip on China since mid-2018.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in 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 market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
