Understanding the NIO Trade - MINOLA New 55 Days High - $1000 Profit that went down to $400

Trading with NIO 

A $558 Profit that turned into just $200.00 profit.

The market has all the opportunity to make you money, but you need to be decisive when to fold so that you can profit as much as you can. When the opportunity arise of having a good profit, take it and keep it in your pocket. Do not wait until it is wiped out from the table by the market. I know this needs a lot of balancing of the pros and cons. 

Here is the scenario that needs to be understood well about the trade with NIO.

NIO had enjoyed a pretty good ride with the rise of TESLA

The Electric Vehicle Industry had been surging recently, especially with the leading innovator TESLA. March 19, 2020, TESLA was just trading between $358.00 and $452.00. This was during the lockdown time of Covid-19. But 5 months later TSLA surged to a high of $2,295.00. An explosive gain that made it number 1 on all Electric vehicle makers and even surpassing General Motors in capitalization by 9.6x. GM has a capitalization of 42.96B while TSLA had now reached a capitalization of $412.4B. No wonder GM is shifting its Corvette engineering team to its electric and autonomous vehicle programs. Tesla with its historic rise had also announced a 5:1 Stock Split in order to be able to make its stock price affordable for everyone. Another catalyst of its continuous upward move

Because of the rise of TESLA, all other electric vehicle manufacturers had enjoyed a good rise in stock values. These include NIO, FUV, NKLA, WKHS and even enticed new electric vehicle maker XPEV to make its IPO debut yesterday August 27, 2020.

NIO hitting New 55 Days high with a breakout on good volume.

March 19, 2020 NIO was just merely trading between $2.23 and $2.55. That was during the lock down on Covid-19 pandemic. July 13, 2020 when businesses had been opened again with social distancing, the stock had hit a new high of $16.44. An impressive 644% increase in value. After that rise, the stock pulled-back to a new low of $10.46 on July 17, 2020 and continued to oscillate its price in contracting pattern with volume diminishing. This was the so called VCP formation or Volume Contraction Pattern. This had gone for 1 month and 20 days since July 02, 2020 when it made its first Gap-up breaking out the high of $9.00.

The pattern 39d-36/12-3T was the reading of the VCP pattern before August 21, 2020. It simply means 39days of price contraction starting with -39% and currently sitting at -12% VCP in 3 touches of contraction. On August 21, 2020, it had actually made -9% in contraction which is pretty closed to around 5 to 7% of which most of the breakout occurs. Indeed by August 25, the breakout occurred with price breaking its previous high of $16.44 and reaching to a new high of $17.87, accompanied with a strong volume. 

How the formation was caught?

This formation was perfectly shown with our stockfetcher filter MINOLA with New 55 Days High.

MINOLA is a term that combines the system of Mark Minervini, William O'Neal and Larry William. Please see previous blog on MINOLA.

Entering the trade during the breakout.

Entering during the breakout on the last half of the trading session is a good strategy to have the trade to sleep over and pop in the morning. When you notice a brekout on the VCP formation like this, try entering on the last session of the day when most of the short sellers are actually being squeezed. 

NIO on the next day, August 26, 2020 made a gap-up which shoot its price to a new high of $20.97

While the buyers are so eager to purchase more shares of NIO, that would have been the time to collect most of the profit. But knowing that breakout like this could run several days more, hanging on with the shares would be locking in more profits, especially when all the news are favorable with the stock. There is a saying which goes "Buy the rumors and sell the news." While the good news had been flying like hotcakes, it was actually a good time to sell.

REVIEWING THE NEWS

The pop would have been a good ride. Most of the time the price would continue for several days based on the positive news. And here are the positive news of NIO that made it breakout its VCP formation.

1. August 25, 2020 NIO had been upgraded from sell to neutral by the bearish UBS Analyst Paul Gong as the fundamentals of NIO had improved in Q2 of 2020 with a good guidance for Q3 of 2020. Its sales in Q2 of 2020 had also increased by 146.5% compared to Q2 of 2019. It had also surpassed the sales of Pandemic laden Q1 2020 by 177.6%. With this kind of news, you will surely have positive outlook from investors who are willing to bet on NIO.
2. August 26, 2020 NIO soared to a new high after a bullish call from Morgan Stanley. Tim Hsiao made a target of $20.50 for NIO and the report continued to explain that NIO after securing a $1 billion investment from state owned Heifi, it had actually removed the risk of not having enough capital to sustain its production of next year due to its net loss and heavy capital consumption. The target was actually reached and NIO had made a new high of $20.97.  
3.  NIO is enjoying its ride with the rise of TESLA stock. Having NIO as the next TSLA( Tesla, the leader in the electric vehicle design, quality, production, good management, revenue generation and sales). NIO had not achieved anything like TESLA yet but had made great production of SUVs that have similar technology as TSLA. Being a Chinese company, it can certainly offer at a cheaper price range with their electric vehicles. 
4. August 20, 2020. NIO during the previous days had actually made a good incentive program for the buyers to make the purchasing of its EV a lot cheaper by launching battery as a subscription service. This innovative way can lower down the cost of acquiring the car compared to its standard package. If this incentive would click, this can certainly increase their sales. Look at #1 as it had been slowly pumping higher its sales. This is really big plus for NIO.
5. With the plan of course to open more facilities in Europe, they are actually gearing up for more exposures and eventually sales. The only downside, is that they had been burning their cash massively with their production and they are in need of more capital in order to support their move. The company had a net loss of 43M in Q1 of 2020 compared to the gain of 42M Q1 of 2019. But they were able to turn things around in Q2 of 2020 when it had made 177.6%  more sales compared to Q1 of 2020. And they are getting much attention now in the market. They can certainly be the next TESLA or at least comparing to AMD and NVIDIA of Graphics Processing Unit manufacturing. Tesla is the NVDIA of EV while NIO is the AMD of EV. 
6. The Q2 2020 result still need to be carried and surpassed in Q3 and Q4. This proof of revenue is what makes the pop to be short lived, as big time investors would like to make sure that it can deliver and have all the financial ammunition to propel its ascent. The news indeed fueled for a pop from the breakout high of $17.87 to a new high of $20.97. Entering at $17.25 during the start of the breakout would have been a nice profit of $3.72.  
   
   
7.  Based on the strength of a breakout with a gap-up and a good volume, the run would have been a continuous upward move. Yet it stalled on the second day after the gap-up. This stall was actually triggered by the recent news that NIO is offering $1.5B more public offering to raise more money as a capital for their minority stake acquisition, research and development in autonomous driving, and global market development. They already have an injection from Heifi, the Chinese State owned firm which help NIO ease the burden of cash shortage. This new cash will enable them to research more on autonomous driving as well as acquire more stake of NIO China. 
   
   Despite the good intention, Big time investors do not really like to see this kind of things. So, the price of the stock most of the time would always fall. On the other hand, Capital investors would love to invest their money with companies that have great potentials. And NIO has the potential to compete with TSLA, so the capitalist would seize this opportunity. But, Capitalist would never like to buy the shares at a high price. Market Makers knew all these and would do all in their powers to basically shake the market to induce fear to other weak investors. Once these weaker hands get scared, they will all relinquish their shares to the Market Maker and Market maker will have a boot load of shares to offer to big time capitalist. Thus, we will see NIO shedding off its price in shorter time, but in the long run, will see Capitalists slowly accumulating shares of this stock. Others shares will be purchased by Morgan Stanley, China International Capital and Bank of America, who are the underwriters of this offering.

The 15min Chart of NIO showed 2 gap-downs after its Gap-UP. The first Gap-Down should have been the clue of the imminent change of direction. The price tried to close the first gap-down but could not breakout from it. It failed and it made another gap-down.

The entry we had @17.25 if sold at @20.30 after the first gap-down signal would have made a nice profit of $3.05. This would translate $915.00 on 300 shares. But letting the price slipped without analyzing what happened in the 15min chart the price had cracked down again for the second time, leaving no choice of disposing the shares @18.64. Instead of $3.05 profit it was cut into $1.39 profit translated into $417.00 profit only for the 300 shares. Greed can sometimes cloud our judgment in analyzing the stock chart. Always make sure to plan a counter attack on major signals. Breakdown is a serious signal and therefore should not be taken lightly. 15minute chart and other time frame like 5min chart are used in contracts with the 1 day chart for they provide the left and right mirrors of the stock highway. The trade was still profitable but half of the gain was taken back by the market. Good trader should not allow this to happen.

In the long term, this NIO can still be a good candidate for ore upside. An appropriate entry should be planned carefully by scribing a new VCP. 

For now, the price seemed to be closing the previous gap-up  @17.85. If might probably go down still. The best course of action is to let the market show its move and if its favorable, ride on the shoulders of the giant. If the ride is good for 2 days or just 1 day based on what you see on the chart, react accordingly and make sure not to give back the money to the market.