Nio (NYSE:NIO) has shifted into turbo drive Thursday, but some investors might question whether shares have gas left in the tank. Let’s take a look at what’s happening with Nio stock to determine a risk-adjusted solution to better navigate its thrilling ride up today.
The market is offering investors some pre-July 4 fireworks to finish off the abbreviated workweek. The SPDR S&P Mid-Cap 400 ETF (NYSEARCA:MDY) is up 2.25% on much stronger-than-forecast monthly jobs data. The index, however, is still struggling inside a trading range more than a month in-the-making after a historic bull-run from March’s corrective bottom.
But that’s not stopping recently crowned mid-cap Nio, whose shares continue to trade aggressively higher.
NIO stock is up nearly 17% Thursday and leading its market-weighted peers to fresh relative highs. And those gains come on top of a near 100% return over the past month, which took shares from a small-cap valuation of around $3.5 billion to today’s firm $8 billion mid-cap membership.
So, what gives? Why is Nio continuing to race higher? Overnight, the EV outfit updated investors with its much better-than-forecast June and second quarter deliveries results. Backing today’s joyride are record-breaking sales of more than 10,000 vehicles for the quarter amid the novel coronavirus. That’s not all either.
The solid performance represents boastful year-over-year growth of 190% and compares favorably to the first quarter’s gain of around 170%. At the same time, Nio’s cumulative deliveries on its ES8 and ES6 models reached more than 46,000 and exceeded the high end of the companies prior forecast. And the good news doesn’t stop there.
Nio investors may also want to thank EV peer Tesla (NASDAQ:TSLA). The outfit also offered a much stronger-than-expected deliveries update to its investors. And similarly, shares are bolting upwards of 8.50% to all-time-highs.
A competitor’s own good fortunes could spell doom-and-gloom under certain scenarios. But with Wall Street more or less fixated on “the good” from any and all reports and key data as economies look to put Covid-19 in the rear-view mirror, in today’s market Tesla is a backseat driver for NIO stock in a good sort of way.
Nio Stock Weekly Chart
Source: Charts by TradingView
Looking at the price chart, shares of NIO are currently at risk of faltering in the short-term. The observation is supported by price action now in its fourth straight week outside of the weekly Bollinger Band. Stochastics have also formed a bearish crossover in overbought territory. But with Nio’s recent and much-needed cash injection, still smallish capitalization and the known ability for momentum to take growth stocks like Nio strongly higher, the interpretation is not to rashly discount Nio’s continued upside potential.
Taking a second look at the price chart, Nio has also formed a very constructive saucer or cup-shaped corrective base over its time as publicly traded company. It’s bullish. Now, with shares testing the 62% retracement level, NIO stock is inside the upper half of the pattern and well-positioned for future gains. And potentially, Nio investors should be rewarded with a breakout to all-time-highs in the coming months.
Given that in the near-term Nio may be due for a rest, but there are no guarantees momentum won’t continue to build. Being much more optimistic longer-term, my recommendation is investors consider the options market for assistance with a stronger risk-adjusted way to position in Nio. One favored strategy with shares near $9 is the Weeklys 15’ Jan $10 / $17 bull call spread for $1.35 or better.
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.