Shares of Nio Just Broke Out

Advertisement

Red-hot electric vehicle stock Nio (NYSE:NIO) continues to dominate the Street with dazzling returns. Its latest feat came on Tuesday after the momentum darling surged 6.4% amid a groundswell in volume. The rally signaled an end to its consolidation phase and the beginning of its next advance. In other words, NIO stock is well-rested, fueled up, and ready to rise once more.

Image of Nio (NIO) logo branded on the exterior of a corporate building.
Source: Sundry Photography / Shutterstock.com

If history is any indication (it is!), this is not an awakening you want to bet against. NIO stock has made fools of every bear over the past year, but that’s not exactly a unique achievement. The entire market has destroyed naysayers for months.

What’s most impressive about NIO stock is the consistency of its trend. It’s been a trend follower’s dream, offering a master class of how bullish patterns are supposed to work. Buyers swarm every dip – quick-like and well before any support zones get breached. They’ve also succeeded in sending every breakout skyward. It’s hard to find a single fakeout over the past six months.

Such well-documented goodness is what builds confidence in participants. It isn’t rocket science. If every time someone trades NIO, it promptly delivers profits, then they’re that much more likely to pounce on the next trading opportunity. It’s a positive feedback loop that has continued to propel prices higher. Simultaneously, the narrative of a booming future for electric vehicles keeps companies like NIO and Tesla (NASDAQ:TSLA) in the news cycle. This makes them easy targets for newcomers looking for ways to score profits on the revolution.

Let’s take a closer look at the recent pattern and why Tuesday’s jump was significant.

Nio Stock Chart

For proper context, we begin with the weekly view. The ascent has been meteoric. Gravity and skeptics have been defied every step of the way. And don’t get me started on valuation metrics. They’ve been worse than useless so far. As is always the case, the best and most timely guide has been price and price alone.

Nio (NIO) stock weekly chart with epic uptrend
Source: The thinkorswim® platform from TD Ameritrade

The trend shows nary a misstep along the way. I’ve highlighted each resistance level and breakout along the way. Note, again, the killer consistency. When you combine that type of history with the ongoing hype, it makes little sense to bet against the current breakout attempt. When viewed from the larger time frame, the past four weeks of chop appear benign. They allowed longer-term moving averages to catch up while gains were digested. More importantly, we barely even retraced the previous rally.

No matter how you spin it, this is bullish.

Nio (NIO) stock daily chart with a beautiful falling wedge pattern
Source: The thinkorswim® platform from TD Ameritrade

When you connect the past few pivots on the daily chart, the month of consolidation takes on the form of a falling wedge. Tuesday’s jump ended the pattern by confirming an upside breakout. The increased volume adds significance and validity to the breach. Resistance at $66.99 beckons as the first target. Beyond that is anyone’s guess, but $75 to $80 is a real possibility based on previous advances.

Pick Your Trade

NIO stock options offer ample liquidity and various ways to play. If you want an aggressive directional trade, then bull calls offer a better bang for your buck than long calls.

Bull Call: Buy the March $65/$75 call vertical for $2.85.

You’re risking $2.85 to capture $7.15.

For a more conservative, higher probability play, you could also consider selling out-of-the-money put spreads.

Bull Put: Sell the March $50/$45 put vertical for $1.15.

Consider this a bet that NIO sits above $50 at expiration. The max gain is $1.15, and the max loss is $3.85.

On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.

For a free trial to the best trading community on the planet and Tyler’s current home, click here!

For a free trial to the best trading community on the planet and Tyler’s current home, click here!


Article printed from InvestorPlace Media, https://investorplace.com/2021/02/shares-of-nio-just-broke-out/.

©2024 InvestorPlace Media, LLC