Nio Inc - ADR (NYSE:NIO) opened higher on Thursday but a lack of bullish momentum caused the stock to reject near Wednesday’s high-of-day and begin to sell off slightly.
A retracement to the downside, or at least a period of consolidation, is needed because Nio has soared about 25% higher in an uptrend over the last four trading days within printing a higher low on the daily chart.
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.
A stock often signals when the higher high is in by printing a reversal candlestick such as a doji, bearish engulfing or hanging man candlestick. Likewise, the higher low could be signaled when a doji, morning star or hammer candlestick is printed. Moreover, the higher highs and higher lows often take place at resistance and support levels.
In an uptrend the "trend is your friend" until it’s not and there are ways for both bullish and bearish traders to participate in the stock:
- Bullish traders who are already holding a position in a stock can feel confident the uptrend will continue unless the stock makes a lower low. Traders looking to take a position in a stock trading in an uptrend can usually find the safest entry on the higher low.
- Bearish traders can enter the trade on the higher high and exit on the pullback. These traders can also enter when the uptrend breaks and the stock makes a lower low indicating a reversal into a downtrend may be in the cards.
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The Nio Chart: Nio’s most recent higher low in its downtrend was printed on June 16 at $18.47 and the most recent confirmed higher high was formed at the $20.26 mark the day prior. If Nio is unable to surpass Thursday’s high-of-day over the coming days, the $23.21 mark may serve as the next higher high.
- On Thursday, Nio was also trading in an inside bar pattern on the daily chart, with almost all of the price action taking place within Wednesday’s range. The inside bar pattern, in this case, leans bullish, because Nio was trading higher before forming the pattern but traders can watch for a break up or down from Wednesday’s mother bar later on Thursday or on Friday to gauge the future direction.
- Eventually, Nio will need to retrace lower in order to print another higher low and that is likely to happen soon because the stock’s relative strength index (RSI) is measuring in at about 64%. When a stock’s RSI nears or reaches the 70% level it becomes overbought, which can be a sell signal for technical traders.
- Nio has a gap above on its chart between $26.41 and $27.22. Gaps on charts fill about 90% of the time, which makes it likely Nio will trade up to fill the empty range at some point in the future. If the stock does, it represents a 19.5% increase from the current share price.
- Nio has resistance above at $23.98 and $27.39 and support below at $21.77 and $20.25.
Photo: Nio ET5 courtesy Nio
