If it were a different time, then a speculative trade in Nio (NYSE:NIO) stock could be justified. But in today’s volatile wreck of a market, Nio stock bulls need to wait safely curbside before considering a test drive in shares. Let me explain.
It has been a tough August for investors of risk assets. The S&P 500 is off around 4%. The Nasdaq Composite is down nearly 5% as of Friday’s closing print. And as the U.S.-China trade war has continued to escalate, shares of NIO stock are off roughly 15%. And the weaker performance isn’t without merit either.
Whether it’s the aging auto boom in China, massive industry competition, reduced subsidies and/or the raised specter of a global recession, in the realm of risk assets, an investment in Nio stock is even more speculative than most others. And those macro issues aren’t the only drag on shares. Nio has other company-specific problems that have challenged the auto manufacturer the past several months.
From weaker customer demand, scrapped factory plans, massive debt and spiraling losses, negative vehicle gross margins and other canary-like metrics, Nio stock or what many liken to as the “Tesla (NASDAQ:TSLA) of China” is in a difficult spot. And much to the chagrin of NIO bulls, that’s not the end of what’s been ailing shares either.
Toss in layoffs, a painful battery recall and delayed model rollout of the company’s highly anticipated ET7 sedan and there’s even more fuel for why shares of Nio are trading below $3 a share. And despite being down nearly 55% in 2019 and having fallen a dizzying 72% from its late winter peak this year, there’s little evidence to suggest buying NIO stock makes sense right now.
Nio Stock Weekly Chart
Much like today’s bearish reality that Nio is facing off the chart, NIO isn’t offering investors any sense of security. That is, unless you’re an investor who is comfortable placing a bearish short on shares.
A failure of key price support this past spring led to all-time-lows in shares. Now and following a modest respite from its worst price levels, an overbought stochastics just starting to weaken and a bearish trend breaking the 62% support level are all warning signs shares could be on their way to challenge Nio’s lows and possibly much worse.
To be fair, conditions could change for the better. In fact, over the past couple months I’ve discussed reasons for seeing NIO stock in a more positive light and I offered ways to smartly enter into a long position in shares.
But not today.
Ultimately, as emphasized earlier, it’s time to respect the fact that the environment for prudent speculation in NIO has continued to weaken. And you don’t have to be a fear-mongering bear to see that this is the case.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
