Benzinga - NIO, Inc (NYSE: NIO) gapped up 8% on Wednesday and surged an additional 17% from the open at one point, in tandem with XPeng, Inc (NYSE: XPEV), which was racing over 40% higher after printing its third-quarter financial results.
Nio’s charge higher was also in continuation of bullish price action on Tuesday, which saw the stock close up 3.75% on hopes the Chinese government would begin to relax its strict COVID restrictions. Many city districts began to lift lockdowns on Wednesday.
The move higher caused Nio to confirm a new uptrend is in play. 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 in an uptrend 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.
The Nio Chart: Nio negated its most recent downtrend on Friday by printing a higher low at the $9.96 mark. On Wednesday, the stock confirmed an uptrend by forming a higher high above the most recent lower high of $10.74, which was created on Nov. 23.
- If Nio closes the trading day under about $12.80, the stock will print a shooting star candlestick, which could indicate a retracement is in the cards on Thursday. The second most likely scenario in that case is that Nio prints an inside bar pattern to consolidate the recent surge.
- If Nio closes the trading day near its high-of-day price, the stock will print a bullish kicker candlestick, which could indicate higher prices are on the immediate horizon. If that occurs, Nio will also regain the 50-day simple moving average as support, which will indicate longer-term sentiment has turned bullish.
- When Nio eventually falls back to print a potential higher low, bullish traders who aren’t already in a position can watch to see if the stock prints a bullish reversal candlestick above the eight-day and 21-day exponential moving averages (EMAs). If Nio can remain trading above the two EMAs, the eight-day EMA will cross above the 21-day, which would be bullish.
- Nio has resistance above at $14.31 and $16.75 and support below at $11.38 and $9.48.
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