NIO Stock News and Forecast: Three reasons why a pullback to $42 in NIO is likely and what next

Update July 8: NIO falls heavily again straight from the open as it drops 6% to $43, nearly hitting our $42 support zone already. This is a support zone with the 200-day moving average and also the volume profile showing a high level of volume. So it can be used as a buy the dip opportunity but please use tight stops. Markets look negative so in my opinion, I would prefer to wait for the next support zone at $35. That may seem a long way off but as we know NIO moves around quite alot. Either way please use stops and trade carefully. 

Update: Shares in NIO fell nearly 4% in early trading on Wednesday as the read across from the DIDI saga continues to hurt Chinese stocks. NIO has now broken the 9-day moving average and looks to test previous resistance at $47.13. Stronger support is found at $42 and this is our support zone as the 200-day moving average and volume profile combine to give it some credence.

NIO stock ended Tuesday pretty much where it started the session which, given the headwinds surrounding Chinese stocks, can be taken as a positive. The DIDI saga (see more) has given investors in Chinese stocks the frights with many suffering steep falls. The concerns of Chinese regulators seem to focus on the enormous amounts of data collected by certain companies on Chinese citizens so hopefully, NIO and other Chinese electric vehicle manufacturers will not have much read through here as they are not going to collect as much data as the likes of tech companies. Either way, though, it is an uncertain time for investors in Chinese stocks and investors hate uncertainty more than bad news. 

NIO had been steadily appreciating since dropping to nearly $30 in May. Since then, the shares gradually appreciated in line with most sector peers as Tesla in particular put in a solid June. NIO shares are up over 23% in the last month, so the setback has to be taken into context. Recent delivery numbers from all Chinese electric vehicle manufacturers were strong. LiAuto (LI) posted record June deliveries, up 166% YoY, XPeng (XPEV) posted a 439% yearly gain in deliveries, while NIO itself posted a yearly gain of nearly 116%. BYD (BYDDF), the Warren Buffet-backed Chinese electric vehicle maker, saw its June sales rise 102% YoY. Tesla (TSLA) also produced record deliveries of over 200,000 vehicles for the first quarter of 2021. So, all electric vehicle manufacturers seem to be hitting record numbers despite global semiconductor chip issues. 

NIO shares just touched off our $54.86 resistance on Thursday before retracing back slightly to close just on the short-term 9-day moving average on Friday ahead of the long weekend. Yesterday was a pretty stable session and Wednesday premarket is also showing NIO stock as relatively unchanged. One interesting point to note is that NIO peer XPeng (XPEV) was listed on the Hong Kong market on Wednesday and shares were up nearly 2% at the open.

NIO statistics

NIO stock forecast

Resistance at $54.86 was met head on and NIO was unable to push through. Given the strong rise from lows in the middle of May a failure at the first try is not too disheartening. NIO shares are still up nearly 20% in the last month. This is where it gets interesting, though. For those that have been riding the trend higher, hopefully, you have a trailing stop in place to lock in some profits. For those looking to take a new position, the situation is less clear.

The 9-day moving average is currently acting as support at $49.29 so just under the psychological $50 level. The volume profile up at these levels is not very strong meaning support is not very strong. Personally, I would prefer to wait for a pullback to a stronger support zone before trying a fresh long position. The area with the strongest confluence of support (fancy words make them sound better!) is the low $40's. This area has a lot of volume and also contains the 200-day moving average at $42.16. There is also a potential support zone at $45 where the point of control sits. The point of control is the price with the highest amount of volume.

So three reasons to wait for the pullback are:

1. The trend has clearly stalled, resistance at $54.86 failed to break and now NIO is pulling back.
2. Chinese shares are under the spotlight for the wrong reasons and even if NIO is not directly affected it is still a headwind.
3. The volume profile is weak at current levels, safer to wait for $45 or my preference $42.

As always, use risk management when entering trades. Personally, if entering at $42 I will likely want to have a stop at the $40 level as underneath there is a small gap and a lack of volume. But every trader has different risk tolerance but without good risk management, a long-term trading career is highly unlikely.