Nio (NASDAQ:NIO) stock has a lot going for it so far this year. It finally saw a strong response to an earnings report and sports a bullish chart that has momentum traders salivating. Today we will analyze the ongoing recovery, with an emphasis on the increasingly constructive price action.
December’s earnings announcement ahead of the New Year provided just the jolt needed to breathe new life into what was recently a stock on life support. Plunging from $10.64 to $1.19 in seven months is no small feat. It reflects just how rapidly the Street turned on the Shanghai-based automotive company known for its development of autonomous vehicles.
Fortunately, the stock has been rescued from its bearish fate and is now flashing technical signals worth talking about. Remember, charts reveal the footprints of money. When institutions enter or exit the fray, their actions are manifest in price and volume.
Last year the big boys hated NIO, but now they love it. And as long as their affection remains, bull trades are worth a shot.
NIO Stock Charts
With NIO still in its infancy as a public company, it lacks enough data to make the weekly chart necessary. Thus, we’re cutting to the chase with an overview of the daily time frame. The Oct. 2 bullish engulfing candle launched the turnaround efforts for NIO, but it wasn’t until December’s quarterly report that the party began in earnest.
The importance of the rousing response to earnings can’t be overstated. And it doesn’t even matter what the numbers were. It’s the reaction that speaks volumes. NIO doubled on the day after earnings before fading into the close. That screams bullish.
Since then, the trend has been nothing but constructive. Buyers have swarmed every dip, and though a few fell below the 20-day moving average, none came close to testing the 50-day. Momentum has ebbed this month, but some digestion was warranted after such an insane run. Consolidation like this makes the stock more attractive because it creates a more compelling entry point.
A symmetrical triangle has formed and reflects a potentially powerful volatility compression pattern. Like a coiled spring, this setup packs some serious pent-up energy. Rest assured, chart watchers will be lying in wait for a breakout.
Trading the Coiled Spring
Thursday’s pop was arguably the confirmation they were waiting for, and I suspect NIO shares would have been up even more if we hadn’t seen such a sharp intraday drop in the Nasdaq. Traders can use yesterday’s high ($4.40) as the new trigger point. If the stock can push above it, a run to $5.50 could be in the cards.
On the downside, a break of the $3.75 support zone would invalidate the breakout attempt and serve as a logical stop loss area.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!
