Nio (NYSE:NIO) has been a fantastic ride for shareholders. But is today a good spot to take a spin, or time to have an eye on the rearview mirror? Let’s see what Nio is presenting investors, off and on the price chart in today’s stock market, then offer an aligned and smarter risk-adjusted determination.
Shares of China-based luxury EV stock Nio were having a terrific year up into September and October’s pair of broader market corrective meet-and-greets. Shares of NIO sported gains on the magnitude of about 425% at its August all-time high. And for the company’s more fervent supporters, the stock was up double that amount and roughly 925% from a Covid-19 driven low struck in March.
Yet far from being periods of payback, September’s and October’s downshifting in the market proved only minor bumps in the road for Nio. Shares have continued to hit new highs since the end of August. Moreover, the stock has returned upwards of 100% in less than two and one-half months.
The enviable gains have allowed Nio’s year-to-date performance to surpass a dazzling return of 1,000% by a fairly comfortable, and stunning in its own right, 7,000 basis points. That’s not all Nio shareholders have enjoyed.
The past couple months have also been a defiantly strong period of both incredible relative and absolute strength for Nio. The market’s own seasonally robust setbacks have proven a challenging detour for many other leading stocks.
The world’s largest enterprises Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), as well as EV heavyweight Tesla (NASDAQ:TSLA) were not only sent into tailspins, but none of those stocks have fully recovered. The large-cap tech-heavy Nasdaq Composite is still about 4.5% beneath its August high. At the same time, MSFT, AAPL and TSLA are off roughly double to more than three times the market.
Why the Big Run?
It begs the question, what’s behind Nio’s performance? There has been a continuation of positive monthly reports to support the price action. This past week the company announced a record breaking 5,000 deliveries in October backed by an improving Chinese economy, but appreciatively, automobiles Nio is enjoying demand for.
The broader market has also helped support Nio’s epic run.
Despite stalling beneath its all-time highs, the Nasdaq is having a heck of a year. The index is up more than 30%. That influence shouldn’t be dismissed. Nor should the performance of EVs and alternative energy stocks.
As a whole, the space has enjoyed favored status in 2020 among investors. Despite understanding Nio’s easier-to-swallow combination of actual product and valuation relative to more than a few of its broader peer group, there does come a time.
Nio Stock Weekly Chart
Source: Charts by TradingView
All stocks correct. Even the best of them. AAPL, MSFT and TSLA investors have been dealing with that very fact the past couple months. Nio’s shareholders will too. And right now, technically the stock’s stellar gains are looking increasingly at-risk to an inevitable bearish corrective cycle. They’re overbought by more than a couple technical metrics.
To be fair, calling a top is foolhardy for a stock of Nio’s caliber. The reality is, to be a day early could easily be more than a dollar short-changed and then some, as the expression kind of goes. But volatility works both ways and stocks like Nio routinely see corrections of 30% in healthy market environments. During periods when stocks become ‘risk-assets’ those declines can grow decidedly more bearish.
Today’s caution isn’t meant to spook today’s investors. The message is simply friendly advice during a period in which now there’s sufficient technical evidence of investors being overly-confident.
Bottom-line, as far as an investment in Nio right now, I’d wait. And for those that have ridden the NIO rocket ship, further scaling out or adjusting into a more structured defensive position using a hedged options strategy is recommended.
Ultimately, being a proactive bull allows for more confidence and money in the coffers to do the right thing (again) when the next rainy day or two appears in the forecast, rather than looking like a crash test dummy.
Stocks owned: On the date of publication, Chris Tyler held, directly or indirectly, positions in Nio (NIO) and its derivatives, but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
