After a phenomenal 2020, a welcome pitstop and positive reports that continue to trickle in, shares of Nio (NYSE:NIO) look well-positioned to drive forward to new highs. Let’s examine what’s happening off and on the price chart of Nio stock, then offer a well-aligned, risk-adjusted way to ride the trend without becoming a crash test dummy.
It’s been a relatively tough year with lots of twists and turns for investors used to the one-way street price action in EV and battery play Nio enjoyed during 2020’s second half. And understandably so. Shares of the Shanghai-based outfit were up nearly 1,200% last year. And most of those dollars earned by shareholders happened from July through December.
But in a market made up of stocks, ownership of top-notch growth stories doesn’t always follow or even lead price action in the broader averages. And while the stock is up in 2021, the bumpy price action accompanying those less linear gains are a testament to this other reality.
As global markets charged higher by as much as 6% led by the tech-heavy Nasdaq Composite, shares of NIO idled their way to a weekly loss of 0.58%. The indifference to shares even followed an outsized loss of 8% compared to declines of around 3.5% to 5% for various index bellwethers far and near.
Growth at a Discount
But rather than worry, the relative and absolute weakness in Nio stock appears to be a modest and short-lived hazard. Now, it is offering a spot for investors to pick up growth at a discount backed by ongoing favorable news.
In Monday’s session the China Passenger Car Association (CPCA) announced sales of electric vehicles jumped by nearly 26% in January from the year ago period. It was the country’s strongest growth since September 2016. The increase does follow a low bar set by the onset of the novel coronavirus.
But the report also highlighted a narrowing of Tesla’s (NASDAQ:TSLA) lead within China’s EV market. This was helped in part by NIO’s continued and explosive sales growth. Earlier this month, Nio announced it delivered 7,225 vehicles marking a four-fold gain compared to 2020’s results. Nice, right? There’s more to be upbeat about as well.
A regulatory filing last week revealed Nio is spending roughly $850 million in order to increase its stake in Nio China from 86.4% to 90.36%. That’s good news as it indicates management is bullish on its own business and financially able to reclaim additional ownership after receiving a $1 billion bailout from Chinese regulators last year amid the pandemic.
This past month the company also provided a positive “Nio Day” investor event that promises continued robust growth. This year’s presentation also revealed 2022’s luxury ET7. The sedan will be NIO’s first such vehicle. What’s more, the ET7 will offer an industry-best driving range of 621 miles and a “second living room concept,” according to the CEO – for those occasions when Nio owners find themselves even farther away from home.
Nio Stock Weekly Price Chart
Source: Charts by TradingView
There’s a lot happening on the news front in Nio stock to be sure. And just yesterday Nio also confirmed it reports its Q4 and full-year 2020 earnings results to be released on March 1. To be sure, that’s worth making a note of. But I’m more a fan of risk right now and what’s being communicated on Nio’s price chart, rather than worrying or fantasizing about quarterly results still weeks away.
The fact is with Nio’s history of volatility shares could be up or down 20% to 30% in the interim. And today based on what we’re observing, shares are poised to use that stock price tendency to bullish investors advantage within NIO’s existing uptrend.
Technically, shares have just confirmed a weekly candlestick pivot low within a base-on-base corrective pattern. More often than not this kind of price consolidation is healthy. Liken it to a pause that refreshes prior to a bullish trend resuming. There’s more reason to be positive with stochastics also oversold.
Ideally, a bullish stochastics crossover would be a stronger confirmation alongside NIO’s reversal pattern. But the combination of an oversold condition and entering closer to technical support looks like sufficient evidence to buy Nio stock in anticipation of a nearby base breakout and likely stochastics signal in tow.
The Bottom Line
Bottom-line though, if you’re looking to make NIO a core holding and use it’s volatility to your advantage during both up and down markets, a fully-hedged and adjustable stock collar is the strategy of choice for risk-adjusted outperformance. One such favored spread combination that looks like a good spot to begin this type of campaign is the Nio March $55 put /$80 call collar.
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.
