From first to among the worst, what a difference a year can make. At least that’s the case with today’s Nio (NYSE:NIO). But what will tomorrow bring for NIO stock investors? Let’s examine what’s happening off and on the price chart of Nio, then offer a well-aligned, risk-adjusted way to ride the trend with less fear of being a crash test dummy.
Not that Shanghai-based EV and battery play Nio has been alone in 2021. More than a few large-cap tech companies which surged in price during 2020 have moved from more run-of-the-mill profit-taking to being classified as stocks in bear markets this year. Roku (NASDAQ:ROKU). Enphase (NASDAQ:ENPH). Salesforce (NYSE:CRM). Teladoc (NYSE:TDOC). Even Apple (NASDAQ:AAPL), the world’s largest company, has flirted with the bearish label at this month’s recent low.
Then there’s NIO’s 800-pound gorilla-like competitor Tesla (NASDAQ:TSLA). The stock is off 6% in 2021. And earlier this month, TSLA stock shed as much as 40% after adding roughly 28% out-the-gate this year on top of 2020’s turbocharged performance of nearly 700%.
But Nio has them all beat.
Exactly one year ago and as the novel coronavirus pandemic was inflicting Wall Street with the worst of its historic bear market toxicity, shares of Nio were fetching less than $2.50. Further, more than a few investors were giving the luxury EV upstart its last rites as a publicly-traded company.
An Amazing Rebound
But a quick-to-recover Chinese economy, sizable government assistance, terrific product and top-notch execution by NIO produced one of the more amazing rebounds and successful paths taken by a company and in tow, its stock price in 2020.
From revenues more than doubling in 2020 and shares rallying nearly 1,200 last year, NIO rightfully became a sensation. And in 2021 the company’s success looks on track to continue. Record deliveries of 17,373 vehicles in its latest quarter and analyst forecasts for Nio’s sales to more than double again this year appear to support that optimism.
Yet in appreciation for its continued and foreseeable winning ways, NIO stock is off nearly 16% in 2021. And at its recent low of $31.91 in early March shares had given back just over 50% of its one-year long rally off its Covid bottom.
So, what gives? Too much success or rather enthusiasm for Nio’s own good? Expensive growth stories like NIO certainly have a way of this type narrative eventually working its way into the storyline. But the best companies demonstrating success like Nio also bounce back. And often they continue to defy the skeptics for long periods of time during which the stock’s largest gains are often manufactured.
Today and rather than worry over Nio’s relative and absolute share weakness or short-term business hazards like a chip shortage, or the Fed’s J. Powell pulling the plug on the market’s risk-on playbook, investors should take a look at a NIO stock price chart and one offering a very decent opportunity to purchase growth at a discount.
NIO Stock Weekly Price Chart
Source: Charts by TradingView
Trying to perfectly cherry pick a meaningful bottom as it’s happening is a fool’s game. But buying into price patterns as technical evidence reinforces the low and increases its chances of becoming a longer lasting uptrend is certainly approachable.
Who actually purchased NIO stock at $31.91 on March 5 as shares teetered some 52% from their January high? Maybe it was a leprechaun getting a head start, an algorithm, or a fortunate resting retail buy order?
Regarding the latter, there is market lore ordinary investors are allowed to purchase the exact bottom of a stock exactly one time in their careers. More importantly, it also simply doesn’t matter.
Bottom Level Better Defined
Today there is a more workable and defined bottom in place that investors should be aware of and care about.
Technically, NIO’s corrective low established a very volatile weekly candlestick which found support in-between the 50% and 62% retracement levels of the stock’s one-year Covid anniversary cycle. Since that time, a bullish-looking inside candlestick formed off Bollinger support was confirmed this past week as shares rallied narrowly above $46.16. The candle signal is highlighted by the yellow oval on the provided weekly NIO stock price chart.
With an oversold stochastics indicator bullishly positioned and backing up the patterned value proposition, investors have decent technical evidence for buying a growth story while it remains offered at a discount. Will it work? So far it hasn’t. But it’s there.
And if investors draw their attention to Nio’s options market, a favored strategy such as a slightly out-of-the-money May $45 put / $55 call stock collar combination looks reasonably qualified to satisfy NIO’s growth ambitions 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.
