Nio Stock Works To Confirm New Trend Following 20% Drop: The Bull, Bear Case

Nio, Inc NIO was trading over 3% lower in the premarket on Tuesday, in tandem with the S&P 500, and the downtrend continued into the regular session. 

The China-based EV maker completed the measured move of a bearish break from a head-and-shoulders pattern on May 2, which Benzinga called out was likely to occur April 20. After completing the break down and falling to the $7.33 mark, Nio bounced up from the area, rising 16% to reach a local top of $8.54 on Monday.

The rise higher negated the stock’s downtrend with the printing of a higher high on Monday, and on Tuesday, Nio may have confirmed a new uptrend with the formation of a higher low.

An uptrend occurs when a stock consistently makes a series of higher highs and higher lows on the chart.

The higher highs indicate the bulls are in control while the intermittent higher lows indicate consolidation periods.

Traders can use moving averages to help identify an uptrend, with rising lower time frame moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term uptrend.

Rising longer-term moving averages (such as the 200-day simple moving average) indicate a long-term uptrend.

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The Nio Chart: On Monday, Nio printed a doji candlestick, which suggested lower prices were likely to come on Tuesday. On Tuesday, Nio gapped down over 3% and fell to the $7.85 mark before bouncing slightly up from the area.

• If Nio closes Tuesday’s session near the high-of-day or near to flat, the stock will print a hammer or doji candlestick, respectively, which could indicate a higher low has occurred and the stock will bounce higher on Wednesday. If that happens, an uptrend is likely to confirm.
• If big bearish volume comes in and drops Nio down under about $7.75, Nio will print a bearish kicker candlestick, which could indicate lower prices will come again on Tuesday. If that happens, bullish traders will want to see Nio reverse to the upside before falling under the $7.30 mark.
• Nio has resistance above at $8.38 and $9.48 and support below at $7.33 and the psychologically important $7 mark.

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Photo courtesy of Nio.