The Street has been warming to electric vehicle companies. Tesla (NASDAQ:TSLA) is the most well-known and has been bid to the moon, but it’s not the only big winner this year. Bulls have been running hot in Nikola (NASDAQ:NKLA) and Nio (NYSE:NIO), as well. NIO stock has rallied more than 14% in the past two day of trading and is fast approaching its 52-week high of $7.90.
Today we’re taking a fresh look at the price action to see how you should trade it right now.
Don’t Fade the Crowd
Based in Shanghai, China, Nio manufactures and sells smart EVs. Since its September 2018 IPO, volatility has clung to its share price like the plague. What began as a wide range riddled with whipsaw morphed into a nasty downtrend that almost turned NIO into a penny stock. Throughout 2019, investors raised valid concerns about the company’s dwindling cash pile. It was burning through available capital while desperately seeking more dough to keep the dream alive.
Fast forward to now, and we have a much healthier situation. There’s no need for an exhaustive look at all of the fundamental improvements because the price chart tells us everything we need to know.
Since bottoming at $1.19 last September, the stock has grown more than six-fold to its current $7.72. Obviously the market has determined the underlying problems with Nio’s business model are either fixed or much less severe than they were.
Whether or not you think the rise is justified is irrelevant. Until the tide turns lower, it’s a fool’s errand to bet against the strength. The crowd has spoken.
NIO Stock Chart
The weekly time frame reveals the recent completion of a year-long rounded bottom pattern. Before December 2019, Nio’s price chart looked like hot garbage. But the past six months have made a massive difference. We’ve seen a groundswell in accumulation weeks both before and, more importantly, after March’s meltdown. We’re now well above both the 20-week and 50-week moving averages.
There’s a lot of price memory around $8, so breaking above it will signal a significant victory for bulls. As fantastic as the past few months have been, the reality is we’ve simply completed a roundtrip back to price levels first seen after the IPO. Ultimately, it will be a break past $10 that signals we’re pushing toward virgin territory. You better believe short-sellers will flee if we move into the double digits.
For more reachable targets in the short run, let’s turn to the daily chart.
The return of momentum is generated a modest amount of separation between the 20-day and 50-day moving averages. This lift confirms that trend isn’t just up, it’s speeding up. Since May’s earning report received a warm welcome, buyers have dominated. The few down days that cropped up were mild and suggestive of garden-variety profit-taking only. Last week’s dip ended before the 20-day average, and Monday’s session formed a bullish hammer candle to signal the next upswing is beginning.
Buyers can aim for $7.90 as their first target. It’s the most recent pivot high and should be visited in short order if the trend continues.
The Simplest Trade is the Best
We could craft a fancy options trade, but with a $7.72 price tag for the underlying, it just doesn’t seem worth the complexity. Options contracts provide cheaper, limited risk ways to trade but that it’s unnecessary in this case. NIO stock is already affordable and you can limit the risk substantially by purchasing an appropriate amount of shares.
As for a stop loss, if you’re looking for a quick swing trade, then consider using $6.50 as your line in the sand. For those looking to capitalize on the overall trend, I’d wait for a break of $5.50 before bailing.
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