Electric vehicle (EV) companies have been red hot over the past few months, and Chinese EV maker NIO Limited (NIO) is no exception. The stock has surged a massive 1,000% since May, and its move higher may not be over yet.
When we look at NIO's price chart, shares are in a nice uptrend, with clear support and resistance levels. Right now, the stock is flirting with its key support area. Take a look:
We have two key support lines in green. One is the horizontal line marking the previous high before shares broke out. This will be a key level to watch over the next few days. Then we have the rising support line highlighting the solid uptrend channel shares are trading in, combined with the red resistance line at the top.
I also shaded in the candlesticks with the colors from the relative rotation graph, or RRG. The RRG combines the relative strength of a stock to the S&P 500 with momentum to create a unique view on the stock. It shows that stocks tend to rotate from leading the overall market, weakening as the momentum slows, eventually lagging the market, and then improving as momentum picks back up to come back to leading the market once again.
Right now, NIO stock is weakening, as indicated by the yellow bars on the chart. Next it would enter the lagging area before it would turn blue and begin improving.
However, with a volatile stock like this, you can see on the previous yellow bars that it sometimes turns right back to leading. So I'm not counting on much more of a decline from here, given the support areas that are so close to the stock price. Instead, I'd expect the stock to do more of the same over the next few months – continue climbing higher.
The Bottom Line
NIO stock has been running higher over the past few months, and the price chart indicates that this will likely continue. The two key areas of support are right below the current stock price, which should give it a boost in the coming weeks. In addition, the RRG is showing us that momentum has already slowed. As it turns higher again, the stock will likely be at new highs in no time.