Potential hazards have turned treacherous in shares of Nio (NYSE:NIO). Today, let’s examine what’s driving NIO stock, what might be next for investors and offer a risk-adjusted determination aligned with those findings.
If misery loves company NIO’s shareholders are far from alone this month. Inflation and worries tethered to Covid-19 have been particularly hard on growth narratives of all kinds.
From the metaverse’s Matterport (NASDAQ:MTTR), to cloud-based up-and-comers like Cloudflare (NYSE:NET) or Nio’s EV peers Tesla (NASDAQ:TSLA) or Lucid Group (NASDAQ:LCID) among many others, bearish casualties are everywhere.
Of course, NIO has had the added burden of being a Chinese stock.
These days, ongoing geopolitical delisting threats have been raised. In fact, on Thursday during a CNBC interview one guest warned “most” Chinese stocks will be removed from U.S. exchanges.
As much and again, from Alibaba (NYSE:BABA) to Didi Global (NYSE:DIDI) or Xpeng (NYSE:XPEV), it’s been a miserable December to remember for many investors other than just NIO stock shareholders.
A Matter of Competition
But it’s fair to say some of Nio’s monthly unwind of around 23% and new year-to-date lows have been company specific or more specifically, what NIO’s competition is doing better than Nio.
Bottom line and where red ink still exists, Nio’s rivals are catching up.
Notably, EV peer Xpeng has announced a supercharger capable of charging its G9 SUV in five minutes, with vehicle production expected by the second half of next year.
And probably not helping matters, Xpeng’s significant battery advantage has found maverick growth money manager Cathie Wood of Ark Invest buying XPEV stock.
All told, it’s fair to say there’s been cause for a headache-filled December and even reasons to drive NIO stock into its more challenging year-to-date decline of 38%.
But some ho-ho-hope may be nearby for bullish investors. This weekend, Nio will hold its annual Nio Day event.
And it could be a triple booster shot for NIO stock if, as anticipated, one new EV is rolled out, another vehicle’s delivery date is revealed and plans for grabbing international market share goes over well.
NIO Stock Monthly Price Chart
Source: Charts by TradingView
All stocks correct. Even the best of the best go through bearish cycles regularly before claiming fresh higher ground. And all indications are that’s what’s continuing to occur in NIO stock.
Since peaking at an all-time-high in January, shares of Nio have put together a two-stage correction. An ill-fated cup-shaped base during 2020’s first-half has morphed into a larger potential “W” or double-bottom corrective pattern.
One pivot low entry last month has already turned into a false-positive buy signal. A trigger above October’s doji pivot failed with December’s weak NIO stock performance.
Often, second-chance opportunities arise and prove the better investment. And on a positive note, Nio is still stationed in-between its 50% and 62% Covid-related retracement levels.
Seeking Confirmation
In our view though, the price confirmation needs to happen sooner rather than later.
Looking at NIO’s monthly chart the symmetry of a second pivot low in relation to the pattern’s mid-pivot is beginning to look stretched.
The observation is December will be critical to finding a meaningful bottom or not. And right now this month’s candlestick isn’t exactly taking on bullish features like a hammer or doji indicating a low.
That could change quickly, of course. Especially with a known NIO stock driver just around the corner.
Still, if the stock doesn’t right itself in a jiffy, I’d warn investors to steer clear of Nio.
Based on our calculations shares could easily get chopped by one-third or more before the next area of critical support comes into play.
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.
