Shares of Nio (NYSE:NIO) have motored higher this past month. Now though and with Nio stock parked in no-man’s land it’s time for bulls and bears to wait for a green light on the price chart before taking a test drive. Let me explain.
Shanghai-based EV manufacturer Nio rightfully has its share of bears and bullish speculators. Referred by many as the Tesla (NASDAQ:TSLA) of China, the recent IPO has a lot in common, both bad and good. From disappointing demand issues for the upstart’s Tesla-like SUV, to spiraling losses, to negative vehicle gross margins or financial indicators warning of bankruptcy, the bear case and slide in NIO stock price have been well-documented.
And let’s face it, if you thought a correction of 75% was as bad as it could possibly get, think again. The fact is a prolonged trade war, an aging auto boom in China, massive industry competition and reduced subsidies are all factors which could continue to pound Nio shares permanently into the ground.
Still, the end of the world narrative painted by Nio stock bears isn’t the whole story.
Similar to Tesla, Nio stock is an innovative upstart. Sure, the company’s glacial layers of debt isn’t going to simply melt away anytime soon. But, the charging infrastructure Nio has put in place to differentiate itself from the competition is impressive. The company’s commitment is the kind of business gamble which could prove the catalyst for Nio to move successfully forward by building very happy and dedicated customers loyal to its brand.
Bullish NIO investors may also be right to take today’s trade war or top-heavy auto sales worries with a grain of salt. Nio’s electric vehicles obviously aren’t impervious to those risks. But it’s a larger mistake to lump this nascent technology and growing segment within the industry into the same cyclical box as a gas-powered automobile. I’d hazard a guess that unless economic problems get so bad everyone resorts to pulling a Fred Flintstone in their choice of transportation, NIO stock’s targeted upscale market Nio is even better suited for helping successfully grow the company.
Nio Stock Weekly Chart
It’s unlikely one day can make a meaningful difference to Nio stock shareholders. However, a weekly candlestick that’s formed on the NIO price chart could prove critical to the fortunes of shorter-term bullish and bearish speculators.
During this past month’s opportunistic rally from all-time and very pessimistic lows, shares of Nio put together a shooting star weekly topping candle. Coupled with an overbought stochastics set-up, the pattern is definitely bearish.
The provided weekly NIO chart highlights this key pattern. If bearish confirmation is generated through the candle’s low of $3.13, the likelihood Nio stock’s rally was nothing but an oversold dead cat bounce increases. In turn, gaining short exposure to NIO and looking to profit from lower prices makes sense.
Similar to what was expressed earlier, there’s a more bullish future for Nio stock which deserves consideration. Technically, a failure to confirm the reversal pattern would be a huge defeat for NIO bears and the stock’s resident short population of approximately 15%. This would pave the way to go long Nio stock.
Bottom-line, if a rally above the high of the candlestick at $4.00 was to occur, it would be a big deal for bulls. The bearish failure would rightfully force some of NIO’s shorts to cover as the technical picture turns more bullish, favoring even higher prices for NIO stock. And it stands to reason, waiting curbside for this momentum-based green light to signal before purchasing Nio stock, makes equally smart sense at this juncture.
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.