NIO Ltd. (NIO) has been a hot stock in the past six months, as the Chinese EV maker has gone up ten-fold. Move over Elon Musk. We last checked in with NIO back on September 30 and thought the stock was finished on the upside after reaching our price target. Alas, NIO went on to double again.
In this updated daily Japanese candlestick chart of NIO, below, we can see new reasons to be cautious on NIO despite leaving so much on the table. Notice the volume spike in the first half of November? Prices rallied to higher highs but on less volume - not good.
A spinning top formation and bearish confirmation in late November marks a peak. Prices are three times the level of the rising 200-day moving average line - very overbought in my book.
The Moving Average Convergence Divergence (MACD) oscillator has crossed to the downside for a take profits sell signal.
In this weekly Japanese candlestick chart of NIO, below, we can see a bearish engulfing pattern at the top of the chart. This is a top reversal pattern that I have found to be very effective.
The weekly OBV line looks like it is peaking and the MACD oscillator has started to narrow.
In this daily Point and Figure chart of NIO, below, we can see that the $22 area is a potential downside price target.
Bottom line strategy: Yes, I cried wolf before, but the charts and indicators of NIO tell me to repeat the message - take profits on NIO and avoid the long side as a correction unfolds.
