NIO Stock: Waiting on the Smart Money for Direction
It is not a secret that China is known for ripping off ideas and creating knockoffs. We have seen a range of knockoff products come to market like clothing, jewelry, and even electronics.
Now, not even the automotive industry is safe. The reason why I am bringing up this controversial subject is NIO Inc (NYSE:NIO), the electronic car manufacturer based out of China that is being labeled as a Tesla Inc (NASDAQ:TSLA) knockoff.
Depending on how you look at it, being called a Tesla knockoff may or may not be offensive. On the surface, labeling a company as knockoff brand is demeaning and disrespectful. But at the same time, being mentioned in the same breath as Tesla is quite an accomplishment.
Tesla is the echelon of achievement. This car manufacturer has done what many before it have tried but failed to accomplish. Tesla created a whole new genre of electric vehicles and did it with impeccable performance and precision. Tesla exudes prestige and class. Being mentioned alongside it carries weight, even if the comparison is meant to be derogatory.
The question I am sure many are asking is whether or not NIO Inc is the real deal. To be frank, I have not done any due diligence on this company, and I also do not plan to do any.
Instead, in order to shed some light on this question, I am going to let the NIO stock chart do the work for me. They do call it “smart money” for a reason.
For instance, NIO stock has been trading within a range that is captured on the following stock chart.
Chart courtesy of StockCharts.com
This stock chart illustrates that soon after inception, NIO stock set a high at $13.80 and a low at $5.35. These price points now represent significant levels of price resistance and price support.
In order to answer the question of whether or not NIO is a legitimate Tesla competitor, I will let the NIO stock price do the work for me. All NIO stock needs to do is break out of this range.
Breaking below price support at $5.35 would suggest that the company is a flop and nothing but a cheap knockoff. Under such pretenses, I would have to believe that this company is likely to fail, just like the many automotive makers that came before it.
On the other hand, breaking above price resistance would suggest that the company has merit. It would be a true competitor and, as a result, it would likely flourish as an electric automotive manufacturer.
These are distinct polar opposites, and when one of these events occurs, I will finally have the answer I seek. As I mentioned, this is why they call it smart money.
Money tends to gravitate toward companies that have good products, management, and are likely to succeed. If all these factors are present, money will move into the stock, causing it to appreciate.
If these factors are not present, the price of a stock will likely suffer as investors flee. This gravitation toward good companies and away from bad ones is why stocks tend to trend over time.
At the moment, NIO stock is sitting near the lower end of the range, which does not exactly exude confidence. However, it does not mean that things cannot turn around. In fact, from a technical perspective, the price action highlighted on the following stock chart might actually be trying to do just that.
Chart courtesy of StockCharts.com
The chart above illustrates that NIO Inc is trying to put in a rounded bottom.
Rounded bottom price patterns are created when a stock is transitioning from a bearish trend into a bullish one. In order to confirm that such a development is currently underway, NIO stock needs to make a higher high by breaking above $8.35. This would indicate that the trend has officially begun to reverse, putting the ultimate level of resistance at $13.80 in the crosshairs.
I am neither bullish nor bearish on NIO stock at this moment. The reason I have no opinion on this stock is because it is currently caught within a wide trading range. Once this trading range is resolved, I will know whether to take a bullish or bearish stance. Until that fateful day, I will remain neutral on this stock.