NIO (NIO) Breaks Out to All-Time High - Investopedia

Shanghai-based NIO Limited (NIO) is set to mount a challenge to Tesla Inc. (TSLA) in China, the United States, Germany, and the United Kingdom, with plans to sell five-, six-, and seven-seat electric sports utility vehicles (SUVs). The cash-strapped manufacturer's outlook brightened considerably in the second quarter when it raised needed capital, setting the stage for the rollout of international sales later this year or in 2021.

Key Takeaways

• NIO almost ran out of money in the first quarter but has now obtained new financing.
• The stock broke out to an all-time high this week in reaction to several Wall Street upgrades.
• Volume indicators still haven't confirmed the breakout.

The company recently reported in-line second quarter 2020 revenue and raised third quarter guidance, advising that it would deliver between 11,000 and 11,500 vehicles in the third quarter, marking potential growth of more 130% year over year. The better-than-expected quarterly loss cheered investors, but NIO has never been profitable, while January's China coronavirus outbreak raised fears that the company would run out of money. That anxiety is finally receding, encouraging recent upgrades by UBS and Morgan Stanley.

Wall Street consensus is now evenly divided, with a "Hold" rating based upon four "Buy," four "Hold," and two "Sell" recommendations. Price targets highlight this broad disagreement, with a low of just $2 and a Street-high $20.50. The stock is trading at an all-time high near $19.50 on Wednesday morning, just $1 below the high target. This placement raises the potential for additional upgrades in coming days, with much higher price targets.

A public company's guidance is its report to shareholders on the earnings it expects to achieve in the quarter or fiscal year ahead. Alternatively referred to as earnings guidance or a forward-looking statement, the report typically includes revenue estimates, projected earnings, and capital spending estimates.

NIO Daily Chart (2018 – 2020)

TradingView.com

The stock came public on U.S. exchanges at $6.00 in September 2018 and topped out in the next session at $13.80. Price action held within a narrow trading range, with support at the IPO opening print, into a March 2019 breakdown that established a new downtrend. Sellers maintained control until October, when the decline posted an all-time low at $1.19. A steady bounce gathered strength at the start of 2020, finally topping out at $5.65 in late January.

The stock broke down during the first quarter selloff, but price held well above 2019 support, posting a higher low at $2.11. It bounced back to the prior high at the start of June and broke out, lifting less than three points above the 2018 high before stalling out and easing into a symmetrical triangle pattern that broke to the upside on Tuesday. NIO is adding to gains on Wednesday morning in reaction to the Morgan Stanley upgrade.

A symmetrical triangle is a chart pattern characterized by two converging trendlines connecting a series of sequential peaks and troughs. These trendlines should be converging at a roughly equal slope.

NIO Short-Term Outlook

The on-balance volume (OBV) accumulation-distribution indicator topped out with price in the first quarter and entered a modest distribution phase that ended in March. Buying pressure hit a new high with price in June, but OBV still hasn't confirmed this week's breakout to an all-time high. It's just a minor bearish divergence that could be resolved in today's session, but a high-volume reversal in the next few days could signal an intermediate top.

Investors and traders looking to buy a pullback should focus on new triangle support near $14.50. That sounds like a deep dip, but this is a volatile issue, and the bearish OBV divergence could easily precede a five- to eight-point decline. Conversely, momentum tactics will be needed if vertical action continues, forcing market players to buy high in hopes of selling even higher. However, that doesn't seem like a sound strategy, given the long time frame until international rollout.

The Bottom Line

NIO stock has broken out to an all-time high, but volume still hasn't confirmed the breakout.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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NIO (NIO) Breaks Out to All-Time High - Investopedia
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