Nio Stock: Lots of Tricks, a Limited Amount of Treats

Considering it has a market value of just $1.57 billion (as of Oct. 18) and doesn’t sell products in the U.S. as of yet, Nio (NYSE:NIO) stock sure generates a lot of headlines and some controversy among investors.

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Among electric vehicle equities, Nio stock isn’t Tesla (NASDAQ:TSLA). The Chinese company isn’t even close and may never be a suitable alternative to Tesla. Nio stock is, however, volatile. On Sept. 24, the Nio stock price plunged more than 20%, a bear market in a single trading day, after the company posted its worst quarterly loss.

The bad times didn’t end there as Nio stock fell another 5.53% the following day after the company announced a dilutive capital raising plan. Two days later, the shares fell another 10.71%, and on Sept. 30, Nio stock again shed nearly 11% in a single trading day.

October has brought more volatility for Nio. The stock plunged nearly 15.4% on the first trading day of the month, but a week later it rallied 9.68%, only to give back most of those gains on with a 6.71% tumble on Oct. 10. Those losses were amplified during a 5.81% drop on Oct. 16, but the bulk of those losses were trimmed via a 4.11% gain last Friday.

That was almost exhausting to write and probably dizzying to read, so one can imagine the heartburn Nio stock causes for investors that own the name. Put simply, that’s a lot of gyrating in a short time frame for a stock that hasn’t traded above $4 since early June.

NIO’s Technical Issues

Currently, some of the talk regarding potential bullishness in Nio stock revolves around a very specific chart pattern, known as the bullish engulfing pattern.

“The bullish engulfing is a two-day pattern, in which a stock falls from the opening price to a record low close on the first day,” according to a MarketWatch piece on Nio. “On the second day, the stock opens below the first-day’s closing price, then rallies to close above the previous session’s opening price.”

There are a couple of things to consider here before declaring Nio stock healthy on a technical basis. First, last Friday’s rally occurred on volume of 21.38 million shares, well below the daily average of 26.41 million shares. Second, Nio needs some good fundamental news to spur good technicals.

Technical analysis is an important field and every investor should, at the very least, learn about some of the basic technical concepts. Thing is, and I’ll probably be taken off the technical analysts’ holiday card list for saying this, many technical events are triggered by fundamental moves.

I’ve been around long enough to remember numerous “technical” moves in assets such as biotech stocks, gold, and oil that were caused by something along the lines of FDA news, safe-haven demand, and geopolitical events.

The point being driven at here is that it’s dicey to hang a hat on Nio’s technical condition, particularly when that outlook remains incredibly murky with the stock down more than 85% over the past year and residing at a price that’s less than half the average analyst estimate. Said differently, barring some good fundamental news over the near-term, it’s possible analysts further trim targets on Nio stock.

Bottom Line on Nio Stock: Bottom Fishing

Nio stock still has a lottery ticket feel to it. It’s by no means a safe stock, but the downside from here, though easily possible, could be limited simply because the shares have already been savagely repudiated.

Of course, the fundamental outlook is dicey at best. For instance, headlines broke last week that China ended talks with Nio on a $707 million facility in east China. That makes last Friday’s 4.11% pop all the more curious and perhaps all the more risky.

Todd Shriber does not own any of the aforementioned securities.

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