Earnings are on tap this evening for China’s Nio (NYSE:NIO). But what’s needed from NIO stock to drive shares higher? Here’s an overview of what you might expect ahead of earnings. I’ll also offer a trade idea for bullish investors to navigate the report more safely.
It has been left behind in recent months. Since the start of the year, NIO is off 23%. And, to be certain, the performance compares unfavorably to EV giant Tesla’s (NASDAQ:TSLA) burly 55% year-to-date capture or the tech-heavy Nasdaq’s 23.50% return.
If misery loves company though, NIO shareholders can always commensurate with Alibaba (NYSE:BABA), Tencent (OTCMKTS:TCEHY), Baidu (NASDAQ:BIDU) and a host of other broad Chinese tech outfits under pressure this year due to various challenges from both domestic and U.S. authorities.
As some will say, “it is what it is.” Well, until it’s not. And that can happen in the blink of an eye as Tesla’s own year-to-date losses up into August indicate.
And this evening an earnings catalyst might just force investors to do more than blink and reconsider NIO stock.
By the numbers, street views are calling for NIO stock to produce a sales jump of just more than 100% for its third quarter on revenues of $1.4 billion. At the same time, earnings are expected to show a loss of 7 cents per share.
Meeting analyst earnings views would mark an improvement of 53% from 2020’s same quarter loss of 15 cents on the back of continued rapid, albeit decelerating, revenue growth.
Of course, investors will also be paying close attention to Nio’s Q4 forecast. It’s always about the future, right? Still, sometimes it pays to look in the rearview mirror for clues.
Most recently, NIO announced a year-over-year monthly deliveries decrease of 27.5% for October. The data also marked a drop of 65% from September.
Yet bears weren’t able to improve upon their year-to-date ownership of NIO stock.
NIO’s management was quick to defend the decline and attributed the weakness to restructuring, pending product rollouts and manufacturing upgrades. And in the report’s immediate aftermath investors reversed early losses to close shares firmly higher by more than 3.5%.
NIO Stock’s Monthly Price Chart Tells a Story
Source: Charts by TradingView
All stocks correct. Even the best of the best go through bearish cycles before ultimately moving to fresh higher ground. And all indications are that’s what’s happened this year in NIO stock.
As discussed earlier, price action in Tesla demonstrates how firmly entrenched and decidedly convinced risk-off behavior can be immediately followed by enthusiastic, risk-on buying.
As for NIO, today’s price chart is strongly hinting at more favorable tailwinds after confirming a classically bullish ‘W’ or high-level double bottom base earlier this month. If I’m correct about the stock’s bullish underpinnings, the base should clear the way for higher prices in Nio shares and eventually new highs sometime in 2022.
Want more evidence? Monthly stochastics positioned in oversold territory and on the cusp of bullishly crossing over is all but backing up the pattern’s existing price confirmation.
Also, Nio’s ‘W’ formation is the same type of corrective price action that TSLA stock was dragged through from January until October when shares finally cleared the base in a massive breakout to new highs.
To be fair of course, one trader’s high-level double bottom is another’s lower-high pattern until the mid-pivot is broken. And breakouts can sometimes turn into double tops in a jiffy.
The point is bull versus bear debates regarding price charts are always going to exist. As appreciatively, a straight-up earnings beat and raised guidance doesn’t preclude a bearish reaction in shares either. But don’t let that kind of uncertainty dissuade your decision in Nio.
Ultimately, if you’re predisposed to being bullish on NIO, buying shares closer to defined technical support on the heels of a larger correction is an attractive-looking proposition. And optimistically, earnings can act as a catalyst for higher prices.
That all being said, as well as taking in the size of Nio’s bearish pattern cycle, a February $40/$50 call vertical for less than 8% NIO stock risk is one favored move today. It allows investors a “smart money” test drive and perhaps eventual ownership of shares.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the 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.