Electric vehicle play Nio (NYSE:NIO) is motoring off 2021’s starting line. But is the rally sustainable? And is it a smart spot for investors to pick up Nio stock?
Lets take a closer look at all the evidence to get a better idea.
Shares of Shanghai-based Nio are up roughly 10% early in Monday’s session to begin the new trading year. That’s a sizeable improvement upon last year’s already insanely terrific gains of 1,172%. Driving the bullish action, a monthly and full-year deliveries report announced over the holiday weekend saw the automaker, along with peers Li Auto (NASDAQ:LI) and Xpeng (NYSE:XPEV), exit 2020 with an even bigger-than-forecast bang.
By the numbers, Nio’s deliveries for December topped 7,000 vehicles to cap off an impressive steady increase in monthly deliverables for five straight months. The final month’s results also saw 2020’s full-year numbers more than double year-over-year on just over 43,700 units.
But can history repeat itself? There is some reason to believe a friendly trend in Nio stock can continue.
A resumption of international expansion, including European markets expected later this year, is one key driver for Nio. The company’s first ever sedan set to be unveiled later this month is another potential catalyst for enduring success. And the company’s commitment to the Nio Services network platform is yet another reason to remain upbeat heading into 2021.
A Look At Nio Stock’s Weekly Price Chart
Source: Charts by TradingView
Everything Nio is doing right now is to fend off the competition and continue capturing market share. Of course, the competition is staked, with undisputed global heavyweight Tesla (NASDAQ:TSLA) constantly bearing down upon it. But the price chart for Nio shows that the spread in market capitalization is poised to shrink.
Technically, a fairly classic-looking corrective move of 33% has taken on the characteristics of a bullish cup-shaped base now in its seventh week. All stocks correct and in general, the aftermath of these occasions can offer stronger platforms for even higher share prices. That’s particularly true for growth stocks like Nio. Call it “the pause that refreshes.”
Given today’s gain of around 10%, shares of NIO are stationed in the upper reaches of the base. They’re too far removed from buying on weakness. They’re also still a handful of percentage points removed from a pattern breakout to all-time-highs.
So, what should you do?
I personally see enough evidence for taking on a bit of exposure in Nio. First, an oversold bullish stochastics crossover bodes well for a nearby breakout. Also, the weekly Bollinger Band is pointing higher rather than flattening. That’s more indicative of a green light than a possible technical hazard ahead. Additionally, the setup is helped along by price action in Nio stock that’s still inside the indicator. It’s also well-removed from appearing excessively overbought.
Ultimately, a Feb $55/$65 Bull Call Spread is a favorable reduced-risk strategy that’s well-aligned with what we’re seeing off and on the price chart.
On the date of publication, Chris Tyler held, directly or indirectly, positions in Nio (NIO) and their 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.
