Whether or not the stock market is overheated is increasingly a contentious point. But when it comes to Nio (NYSE:NIO) stock, there’s now plenty of fuel in the tank — off and on the price chart — for investors to buy into. That said, let’s examine what’s happening in Nio stock right now and offer one risk-adjusted strategy to avoid always possible car wrecks; While also being positioned for a more bullish road ahead.
The market is offering investors some additional sizzle entering the month of August. Led by the tech-heavy, large-capitalization Nasdaq Composite, gains of more than 3.7% last week are being improved upon by roughly 1.5% at this point on Monday. And Shanghai-based electric vehicle (EV) upstart Nio is going along for the ride, as shares are up more than 10%.
Broader optimism in the major averages has been imbued by easing China-U.S. tensions after word of Microsoft’s (NASDAQ:MSFT) CEO talking with President Donald Trump’s administration regarding its acquisition of Chinese-owned TikTok’s U.S. operations.
Additionally, there’s also been a modest number of lesser but positive earnings releases. In turn, these have helped promote gains despite Covid-19 stimulus money gridlock on Capitol Hill.
However, if you’re worried the Wall Street is ahead of itself, Nio is making a compelling case for higher share prices yet.
Positive Delivery Numbers for Nio
On Monday morning, the smaller, large-cap luxury EV manufacturer announced monthly July deliveries of 3,533 vehicles. The result marked a year-over-year gain of 322%, and improved total deliveries in 2020 to 17,702 vehicles for Nio.
But, the positive news didn’t stop there either.
Nio’s management also stated it can significantly increase production capacity to support higher Q3 deliveries. CEO Steven Feng also confidently stated Nio’s ES8, ES6 and EC6 models are complementary vehicles, which will “aggressively gain” larger internal combustion engine or ICE and EV market shares.
Sure, when it comes to putting the rubber to the road, Tesla (NASDAQ:TSLA) is still the undisputed 800 lbs gorilla in the EV market. However, Nio continues to make the argument it’s a competitor not to be dismissed. Additional clarity could be nearby with the company slated to report its second-quarter results next week on Aug. 11.
Right now, though, Nio’s stock chart is looking road-worthy for investors.
Nio Stock Weekly Chart
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Collectively, Monday’s report-driven gains are setting Nio stock investors up nicely for new all-time-highs. And as the weekly chart shows here, July saw Nio stock establish all-time highs out of a breakout from a life-time corrective saucer formation. However, the record-setting rally also worked shares into a technically overbought condition.
The good news, though, is that’s no longer a problem. And now, shares appear highly-actionable for purchase.
The past three-plus weeks have eased Nio’s short-term excesses in a constructive pullback pattern. The correction successfully tested the stock’s 38% Fibonacci level tied to a pivot low formed in May shortly after a key move through trend-line resistance.
Now, and with Monday’s bid in shares, Nio stock has confirmed a double inside candlestick pivot low. In our estimation, it’s a solid platform for a rally back above the saucer’s high — and hopefully, new unchartered territory for the stock in the months ahead.
For extra technical confirmation, investors may wish to wait for a neutralized stochastics setup to form a bullish crossover. However, with the secondary indicator already firming up and on the cusp of a signal, positioning long shares of Nio stock as part of a collar strategy might be considered.
One favored play of this type right now is the Sept. $12 / $19 collar combo for $13.95 versus shares at $13.25.
Bottom Line on Nio Stock
Overall, for 70 cents in premium and an earnings catalyst next week, this collar offers investors a flexible, defined and reduced risk way to avoid potential car wrecks in the stock price. At the same time, though, if Nio does motor strongly, this strategy offers solid trend-following profit potential that’s still worth the price of admission over the long haul.
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. Christopher is a former floor-based, derivatives market maker on the American and Pacific exchanges. Investment accounts under management currently own positions in Nio (NIO) and its derivatives but no other securities mentioned in this article.
