A Tesla Contrarian? Nio's Beaten-Down Stock Flashes Buy Signal

Nio Inc-ADR NIO gapped down Wednesday following the news Chinese property developer China Evergrande Group EGRNY may default on its loans.

Chinese-based stocks have already been beaten down hard over the past few months amid poor China/U.S. relations, China’s struggling economy and the communist government’s seemingly disregard for the success of its home-based EV and tech giants.

Nio’s stock has also become detached from the influence of Tesla Inc’s TSLA stock and the two have been moving inversely to each other. Nio has been trading in a downtrend since reaching a July 1 high of $55.13, whereas Tesla has been trading in a fairly consistent uptrend since hitting a low of $546.98 on May 19.

See Also: If You Had $1,000 Right Now, Would You Put It On Tesla, Nio, Xpeng Or Li Auto?

The Nio Chart: On Monday Nio traded down toward a support level near the $34 mark but found some buyers and closed the day up slightly from the level. On Tuesday the stock printed an inside bar, which indicates Nio was consolidating the sharp decline. Nio may print a double inside bar on Wednesday to further consolidate the move.

Nio’s stock now has two gaps left above it. The first gap is between the $36.41 and $36.96 levels and the second higher gap lays between the $39.45 and $40.53 range. Gaps on charts are filled 90% of the time, which makes it likely Nio’s stock will trade up into both ranges in the future.

On Tuesday Nio’s relative strength index reached near the 33% level, which puts the stock close to oversold territory. When a security’s RSI nears or exceeds the 30% mark, it's a buy signal for technical traders. When Nio’s RSI hit 32% on Aug. 19 the share price shot up 14% over the 12 trading days that followed.

Nio is trading below the eight-day and 21-day exponential moving averages (EMAs) with the eight-day EMA trending below the 21-day, both of which are bearish indicators. The stock is also trading below the 200-day simple moving average, which indicates overall sentiment in the stock is bearish.

• Bulls want to see big bullish volume come in and drive Nio’s stock up to fill the closest overhead gap, which would allow the stock to regain the $36.56 level. Above the level Nio has resistance at $39.61 and $41.86.
• Bears want to see big bearish volume break Nio down from the inside bar pattern and for the stock to lose a support level at $34.06. There is further support below at $30.71 and $27.39.