If you’re not in Nio (NYSE:NIO) yet, it’s offering a beautiful setup — and the trigger appears imminent. To prepare you to profit from the forthcoming launch, I will analyze the NIO stock pattern. Then we’ll explore two different ways to trade it.
The electric vehicle space has taken Wall Street by storm this year. Traders have taken stocks in the industry to the moon, and NIO is up there as one of the hottest of the bunch. In fact, NIO stock received a major boost on Wednesday after an analyst upgraded their rating and price target.
Overall, it has several characteristics going for it. For starters, it’s cheap. At $26, it boasts a price tag that beckons to speculators on a budget. Next up is its compelling fundamental narrative, as it’s a play on the future of the automobile industry.
NIO Stock Chart Deserves Admiration
And then, there’s the incredibly well-behaved technical behavior. Since it took flight in late-May, every bullish pattern has paid out. Buying dips, chasing breakouts — you name it. Bulls have been rewarded every time without fail.
It’s that type of history that beckons to spectators to come and partake. And such a track record encourages and emboldens buyers. The rationale is simple: if the last five breakouts delivered big gains, then why wouldn’t the current one?
It’s a perfect case study of a trend in motion remaining in motion.
The daily chart chronicles this year’s steady ascent. If you find the relationship between the candle pivots challenging, then use the moving averages instead. The 20-day, 50-day and 200-day averages have all been marching steadily higher. Most trends will retreat to the rising 50-day average periodically during more significant corrections. But not NIO stock! Dip buyers have been so aggressive during pullbacks that we’ve barely even visited the south side of the 20-day. It belies impressive strength.
Ever since last month’s punch to a then record high at $22.59, we’ve been in base-building mode. For two weeks now, a high base has been forming to digest gains and set the stage for the next upswing. As overbought pressures have eased and moving averages caught up, we’ve seen volume patterns remain constructive. We haven’t seen any distribution whatsoever, suggesting that the selling pressure is minor profit-taking and nothing more.
We also haven’t given back an inch of the ground gained during the late-September launch. It’s anyone’s guess as to how much longer the base lasts. All I know is it’s smart to prepare beforehand for trading the next inevitable breakout over the $22 resistance zone like Wednesday.
The KISS Method
The first idea is simple: Buy shares on a push through its ceiling. If you’re looking to game a short-term pop, then you can place a stop loss below the previous day’s low or the low of the base. In this case, that’s either $21.17 or $20.50. On the upside, $25 is the first likely target.
One beautiful thing about sticking with stock is the simplicity of the execution. There’s no fancy math nor complex structure you need to understand before playing. And the order entry is a cinch.
But if you want to take a more leveraged route, then consider the next trade.
Lever Up With Long Calls
Market forces have driven implied volatility into the basement, and that means option premiums are cheap. This works to the advantage of purchasing call options over shares of stock. The risk is limited to the price paid, and the reward is unlimited. At least until the expiration of the contract.
If you want to take the more aggressive route, then buy the Nov. $21 call for around $2.90. Alternatively, you could purchase the Jan. $21 call for $4.90.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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