If you’ve been waiting for a pullback to buy Nio (NYSE:NIO), does this past week’s dramatic U-turn lower offer investors a nice spot to park capital in shares? Let’s look at what’s happening off and on the NIO stock chart, then offer a risk-adjusted determination aligned with those findings.
NIO. Not that it was alone, but a shortened U.S. workweek following the July 4 holiday proved especially tough for the Shanghai-based EV play. Shares skidded by 9.66% and much steeper than other electric vehicle stocks.
From China-based peers BYD Co. (OTCMKT:BYD) and Li Auto (NASDAQ:LI) or 800-pound EV giant Tesla (NASDAQ:TSLA) and even those whose rubber has yet to hit road such as Fisker (NYSE:FSR) and Churchill Capital (NYSE:CCIV) declines were comparatively much tamer from less than 1% to roughly 6% respectively.
NIO Stock and the Market
So, what gives in shares of Nio?
Growth stocks took larger hits this past Thursday on plummeting yields and worries over the sustainability of a global economic recovery. So, there’s that, right? Actually, not so much.
Other than NIO stock rebounding off its worst levels of the week on broader market bargain-hunting late Thursday and on the back of Friday’s battery swap Nio Power Day event, nearly all of NIO’s weekly loss occurred through Wednesday.
And for that, Nio has Chinese regulators to thank, as well as an outsized sympathy reaction by investors with only EV peer Xpeng (NYSE:XPEV) and its 8.73% loss nearing NIO’s sizable stock hit.
The damage that came to a head Wednesday leaving Nio down 8.45% was tied to China’s government imposing restrictions and cybersecurity reviews against recent domestic companies listing in the U.S this year. These include popular ride-hail operator DiDi Global (NYSE:DIDI).
Investors Ponder the Consequences
However, on top of threats earlier this year by U.S. officials to stem trading in Chinese stocks, the tit-for-tat political theater had investors shooting first and taking particular care putting Nio in the crosshairs.
My hunch is today’s and yesterday’s threats will fade. But after reviewing Nio’s price chart, that’s not to say today’s pullback in Nio is worth buying.
NIO Stock Weekly Price Chart
Source: Charts by TradingView
Prior to the selloff, NIO stock enjoyed a nice run. As the illustrated weekly chart reveals, shares gained roughly 77% off the low of May’s completed double-bottom pattern to a peak value of $55.13 entering the month of July. And often, a decline of last week’s magnitude could offer an opportune and healthy pullback to buy.
At the moment though, NIO price chart is warning strongly against that type of purchase decision.
Technically, NIO has confirmed a topping candle. It found resistance near its 62% Fibonacci level tied to its January to May bear market cycle. What’s more, stochastics crossed bearishly in overbought territory.
At a minimum and given Nio’s unusually weak performance relative to its peers, there’s sufficient evidence for existing shareholders to trim positions.
Optimistically, Nio is anticipated to put its bearish behavior in the rearview mirror and move onto fresh relative and perhaps even new all-time-highs. But in light of the circumstances off and on the price chart, jumping the gun on a buy could prove a big mistake.
For Nio shares to begin a more bullish campaign, stochastics will need to reset or at least begin to flatten in neutral territory. NIO stock will also need to confirm a bottoming weekly pivot before it can move higher. It’s not physics per se, but without it, there’s no chance for a rally, right?
Bottom line, for investors entertaining the purchase of NIO, it’s simply a better time to monitor shares than act.
And if the conditions described above can make their presence known in the next couple weeks, a buy and one which steers clear of avoidable headaches is going to look a great deal more approachable and likely profitable in our estimation.
On the date of publication, Chris Tyler does not hold (either directly or indirectly) positions in any securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.