MagicPoopCannon here! LOL I just love saying that. Today, I'm doing a special analysis for a friend of mine on NIO! Let's get to it!
Looking at the daily chart for NIO, we can clearly see that the stock has been in a powerful bull run, which kicked off in May of 2020. NIO has been in a well defined uptrend channel (in blue.) This uptrend channel helped to propelled the stock above it's previous all time high of 13.80, which NIO formed right after the IPO in September of 2018.
For about the past two weeks, NIO was forming a textbook bull flag (in black.) Then, yesterday we saw the stock gap higher as it broke out above the bull flag, taking it all the way to the top of the rising parallel channel.
At the moment, NIO is breaking out ABOVE the top of the blue uptrend channel. Today's close is going to be very important in determining the viability of this breakout through the short term. If the stock can close above the blue uptrend channel, that would solidify the breakout. However, if the stock turns lower and closes back inside of the uptrend channel, it would signal a failed breakout that could send NIO lower to retest the bottom of the uptrend channel.
With that said, this currently looks like a solid bullish breakout, but there are a few points of concern. First, NIO is well outside of the Bollinger Bands (in grey.) About 95% of the time, stocks trade inside of these bands. When price gets far outside of the bands, it generally tends to revert to the mean, returning to the inside of the bands. In this case, it would be ideal to see price return to test the top of the blue uptrend channel and hold it as support. That would allow price to get back inside of the Bollinger Bands, while also confirming new support above the uptrend channel, giving the green light for more bullish action.
Asside from the Bollinger Bands, the other area of concern is the indicators. Looking at the bottom of the chart, you can see that the RSI (relative strength index) and the MACD (moving average convergence and divergence) have been making lower highs while the stock price has been making higher highs. That's actually a bearish divergence, which shows that the underlying strength is waning as the bulls reach exhaustion. Bearish divergences are a staple precursor of a trend change to the downside.
When we're analyzing a stock like this, which is in new all-time-high territory, it's important to try to understand the upside potential. We can get an idea of upside potential by looking at the previous price action. To do that, we need to look back to the September 2018 high (black horizontal trendline.) After the September 2018 high, price entered a downtrend from there. The deepest part of the downtrend, from the 2018 high is shown with a vertical dashed green trendline on the chart. That low occurred in early October 2019. If we take the measurement of the 2019 low from the October 2018 high (green vertical trendline) and add it above the 2018 high, we can see that it projects a price target of about 26.80. So, while the current price action is very bullish, it's important to note that price is above the would-be price target based on the depth of the trough formed in 2019.
Ultimately, price has reached a major upside target (26.89) that was projected by the 2018-2019 trough. If price manages to remain above that 26.89 level, and particularly if it remains above the blue uptrend channel, I think the next resistance will be at 34.21 and then the 39-40 area. However, the underlying indicators are showing some short-term weakness, which needs to be monitored.
We've seen NIO breakout above the all time high from 2018, form a powerful uptrend channel, produce price gaps higher, form bull flags, surpass a major price target, and now it produced a breakout above the blue uptrend channel to form new all-time-high. Given this increasingly bullish action on the chart, NIO could be on the verge of a parabolic move, despite the possibly temporary divergence seen on the indicators. Short-term traders will want to use the top of the uptrend channel and especially the 26.89 level as a line in the sand. If price starts to break down below those levels, it could be wise to make a short-term exit to wait for a better entry point. For now, the trend remains strong and to the upside.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-
Looking at the daily chart for NIO, we can clearly see that the stock has been in a powerful bull run, which kicked off in May of 2020. NIO has been in a well defined uptrend channel (in blue.) This uptrend channel helped to propelled the stock above it's previous all time high of 13.80, which NIO formed right after the IPO in September of 2018.
For about the past two weeks, NIO was forming a textbook bull flag (in black.) Then, yesterday we saw the stock gap higher as it broke out above the bull flag, taking it all the way to the top of the rising parallel channel.
At the moment, NIO is breaking out ABOVE the top of the blue uptrend channel. Today's close is going to be very important in determining the viability of this breakout through the short term. If the stock can close above the blue uptrend channel, that would solidify the breakout. However, if the stock turns lower and closes back inside of the uptrend channel, it would signal a failed breakout that could send NIO lower to retest the bottom of the uptrend channel.
With that said, this currently looks like a solid bullish breakout, but there are a few points of concern. First, NIO is well outside of the Bollinger Bands (in grey.) About 95% of the time, stocks trade inside of these bands. When price gets far outside of the bands, it generally tends to revert to the mean, returning to the inside of the bands. In this case, it would be ideal to see price return to test the top of the blue uptrend channel and hold it as support. That would allow price to get back inside of the Bollinger Bands, while also confirming new support above the uptrend channel, giving the green light for more bullish action.
Asside from the Bollinger Bands, the other area of concern is the indicators. Looking at the bottom of the chart, you can see that the RSI (relative strength index) and the MACD (moving average convergence and divergence) have been making lower highs while the stock price has been making higher highs. That's actually a bearish divergence, which shows that the underlying strength is waning as the bulls reach exhaustion. Bearish divergences are a staple precursor of a trend change to the downside.
When we're analyzing a stock like this, which is in new all-time-high territory, it's important to try to understand the upside potential. We can get an idea of upside potential by looking at the previous price action. To do that, we need to look back to the September 2018 high (black horizontal trendline.) After the September 2018 high, price entered a downtrend from there. The deepest part of the downtrend, from the 2018 high is shown with a vertical dashed green trendline on the chart. That low occurred in early October 2019. If we take the measurement of the 2019 low from the October 2018 high (green vertical trendline) and add it above the 2018 high, we can see that it projects a price target of about 26.80. So, while the current price action is very bullish, it's important to note that price is above the would-be price target based on the depth of the trough formed in 2019.
Ultimately, price has reached a major upside target (26.89) that was projected by the 2018-2019 trough. If price manages to remain above that 26.89 level, and particularly if it remains above the blue uptrend channel, I think the next resistance will be at 34.21 and then the 39-40 area. However, the underlying indicators are showing some short-term weakness, which needs to be monitored.
We've seen NIO breakout above the all time high from 2018, form a powerful uptrend channel, produce price gaps higher, form bull flags, surpass a major price target, and now it produced a breakout above the blue uptrend channel to form new all-time-high. Given this increasingly bullish action on the chart, NIO could be on the verge of a parabolic move, despite the possibly temporary divergence seen on the indicators. Short-term traders will want to use the top of the uptrend channel and especially the 26.89 level as a line in the sand. If price starts to break down below those levels, it could be wise to make a short-term exit to wait for a better entry point. For now, the trend remains strong and to the upside.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-