Impressive sales and a recent upgrade have sent the NIO stock price 40% higher in the last month. But are there signs the rally is running out of juice?
NIO (NYSE: NIO) finished the day pretty much where it started. The Chinese EV maker closed at $42.76, higher by $0.02 (+0.05%)
Just a month ago, after reporting dismal Q1 earnings, NIO was languishing just above $30. The 13th of May low of $30.71 was the cheapest the stock had traded since October 2020 and a discount of more than 50% from the $66.99 all-time high set in January.
The $0.48 loss per share for the 3 months ending March was much wider than the $-0.08c per share the market expected.
Fast forward a month and things are looking brighter all-round.
NIO managed to deliver 6,711 vehicles in May despite some semiconductor supply issues, increasing sales by over 95% year over year.
This led Citigroup (NYSE: C) to upgrade the stock rating from neutral to buy. Additionally, Citi analyst Jeff Chung raised his price target by $0.60 to $58.30.
NIO stock gained almost 17% to $.44.89 in the 5 days following the June 1st upgrade.
However, NIO has lost 5% over the last three days, and signs are pointing to momentum reversing.
The daily chart shows that the NIO stock price pulled back after failing to close above the 100-day moving average at $44.02. It’s perfectly normal for the price to pause at the first touch of an important DMA. We saw this in February, and the price crossed the average 4 days later.
In isolation, the failure to break the 100 DMA isn’t conclusive.
Nonetheless, the lack of volume on this rally is not screaming that investors are clambering to buy.
Trading volumes have been declining over the last year but, more importantly, over the last week.
On the 1st of June, 101.5 million shares were traded, higher than the average 20-day volume of 63 million. Yesterday 36 million shares changed hands, well below the average.
This points to a lack of buying interest. Moreover, the reversal in price also suggests the current momentum is fading.
The more time NIO spends below the 100 DMA, the less convincing the rally becomes. This could target the 200 DMA at $39.72.
This is considered an essential gauge of direction. A failure to hold this level would signal that the NIO stock price could be in for a much bigger decline.
The next downside target is the 13th of May low at $30.72.
Although I consider this an apocalyptic scenario and don’t see signs of this now, and given the optimism, buyers should emerge if the price trades toward the 100 DMA.
Of course, the recent pullback could be a pause in the rally. Above the 100 DMA, we can see trend line resistance at $45.27.
The trend connects highs from the 1st and 28th of April. Should the price close above the moving average and the trend, it would open the door to $50.00.
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