If you want a company with built-in safety features off and on the price chart, Chinese automaker Nio (NYSE:NIO) should be on your radar. Moreover, in today’s market Nio stock is ready for a test drive with the potential to deliver big-time profits into your portfolio. Let me explain.
Since the market’s corrective low more than three weeks ago and depending on where one looks, Wall Street has quickly become an ambitiously bullish environment. The S&P 500 index is closing in on gains of nearly 30%. Additionally, top and influential constituents Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Home Depot (NYSE:HD) and many others are now mostly overbought and positioned to test the mettle of those bulls in the short-term.
The emerging bull market and overall healthier investing environment hasn’t been uniform in distributing its gains though. And right now that failure stands to benefit NIO investors.
Smaller stocks and in particular more speculative companies have lagged their larger-capitalization peers. A sufficient comparison is the iShares S&P Small-Cap 600 Growth ETF (NYSEArca:IJT) versus the S&P 500. The former is squaring off against the 38% retracement level from its 2020 high-to-low and December 2018’s all-encompassing market bottom. Meanwhile, the latter has already retraced 50% of its corrective move and well above its prior low. And Nio stock has fared even worse.
The disparity in performance shouldn’t be surprising. Larger enterprises flush with cash and track records of withstanding more challenging business cycles are safer bets as investors’ tiptoe back into risk-assets. Also, given the novel coronavirus and it’s still-unclear economic impact, buying AAPL stock or even Nio’s much larger rival Tesla (NASDAQ:TSLA) is an even easier buying decision. Until now at least.
Nio Stock Weekly Chart
Source: Charts by TradingView
To be clear, Nio stock is no Tesla. True, both companies compete in the luxury EV market. But the buck stops there. Despite bumps in the road over the past few years, Tesla has proven itself a force to be reckoned with in the industry. The company is even challenging Nio on its own turf in China. Still, without promises that can’t reasonably be kept, buying NIO isn’t about owning the next TSLA.
A purchase of Nio shares in today’s market is about a calculated bet with increased odds for success in the short-term. A position in NIO is about investors putting a small portion of their capital to work in riskier investments within an overall healthier market. This appreciably makes sense as fear and uncertainty, while still apparent, have been vastly reduced the past couple weeks.
Secondly, even if you are still wondering are electric vehicles really better for the environment, the people running China believe so and are throwing a lot of weight behind the EV industry. And Nio stock is one of those key beneficiaries. It’s a built-in safety feature of sorts. And for now at least, it’s a positive.
Technical Takeaway Remains Positive
NIO also sports a price chart well-positioned for limited, but attractive, upside profits relative to downside risk. Technically, shares have just signaled out of a three-week inside consolidation pattern. Intraday Tuesday, shares retreated slightly below the buy point, but our technical takeaway remains positive.
The multi-week consolidation pattern has found support at the 76% retracement level tied to Nio’s September low to January rally high. That’s resulted in a bullish higher low formation. Further, an oversold bullish stochastics crossover favors the low to hold.
Importantly, the relatively tight contraction also plays a critical role in setting up a stop-loss or maybe a bullish married put strategy. And relative to downside risk a minimum Fibonacci-based price target of $6.00 a share looks possible and attractive in an investing environment now cooperating for this type of test drive and possibly longer-term ownership of Nio stock.
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.
