December’s quarterly earnings report reignited the spark in NIO (NYSE:NIO) shares when it created an electrifying 54%, single-session gain. Since then, we’ve seen nothing but bullish behavior, with a second jolt arriving yesterday after rumors swirled that the Shanghai-based EV maker would receive a $1 billion cash infusion from GAC Group. NIO stock rallied 14%, with over 236 million shares traded.
Source: Carrie Fereday / Shutterstock.com
Overnight selling created a down open that has since reversed, driving the NIO American Depository Receipts (ADRs) up 1.86% on the New York Stock Exchange.
While there’s always the chance rumors prove false and deals fall through, NIO is looking up from a charting perspective. It now looks way healthier than last year and is providing technical reasons for optimism. Nonetheless, caution is warranted because volatility is bound to remain elevated.
Let’s take a closer look at the charts.
What Does NIO Stock’s Chart Say?
Normally I’d begin on the weekly time frame before moving into the daily, but since NIO only went public in September 2018, there isn’t much of a trend to analyze for a bigger picture.
NIO’s deathly descent began in earnest last March after its first of many disappointing earnings reports. Since then, it really hasn’t given buyers a reason to get involved. Both the magnitude and consistency of the drop warned bulls off and carried shares down around 90% to $1.
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Source: The thinkorswim® platform from TD Ameritrade
The Q4 rebound might have provided some evidence of a turnaround, but only gamblers should have held into the late-December earnings report, given the company’s dismal history. Fast forward to today, and we finally have a good looking uptrend on our hands. The dip after earnings was bought at the 200-day moving average, and yesterday’s news-driven launch marked the sixth-straight up day.
The 20-day and 50-day moving averages are both cruising higher and look better than at any point since last February’s failed breakout attempt. Tack on the fact that we’re north of the 200-day, and I like the stock’s posture moving forward. Key support looms at $3.11, so watch out below if we break it.
Volume patterns buttress the bull case with multiple accumulation days cropping up in recent weeks. This groundswell in buying should embolden those banking on higher prices.
Two Thoughts for Trades
If you’re looking to build a bullish position in NIO stock, I have two suggestions.
First, size small enough to ensure you can withstand the outsized volatility. If NIO fails to get the cash influx that it needs, we could see the recent gains rapidly unwind.
Second, because I’m not a fan of chasing a stock gunning for its seventh-consecutive up day, consider scaling-in instead. Buy some shares now but leave the door open to buying more at lower prices in case NIO stock pulls back over the coming days.
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!
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