Nio, Inc (NYSE: NIO) was trading up about 2.4% on Wednesday after opening lower, a move that was triggered by inflation data, which came in higher than what was expected, at 9.1%.
Despite showing strength in comparison to the general markets, Nio has been trading in a downtrend since topping out at the $24.43 mark on June 27.
A downtrend occurs when a stock consistently makes a series of lower lows and lower highs on the chart.
The lower lows indicate the bears are in control, while the intermittent lower highs indicate consolidation periods.
Traders can use moving averages to help identify a downtrend, with descending lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term downtrend.
Descending longer-term moving averages (such as the 200-day simple moving average) indicate a long-term downtrend.
A stock often signals when the lower low is in by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. Likewise, the lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. Moreover, the lower lows and lower highs often take place at resistance and support levels.
In a downtrend the "trend is your friend" until it’s not and in a downtrend, there are ways for both bullish and bearish traders to participate in the stock:
- Bearish traders who are already holding a position in a stock can feel confident the downtrend will continue unless the stock makes a higher high. Traders looking to take a position in a stock trading in a downtrend can usually find the safest entry on the lower high.
- Bullish traders can enter the trade on the lower low and exit on the lower high. These traders can also enter when the downtrend breaks and the stock makes a higher high, indicating a reversal into an uptrend may be in the cards.
The Nio Daily Chart: The most recent confirmed lower high in Nio’s downtrend was printed on July 8 at $23.28 and the most recent confirmed lower low was formed at the $20.04 mark on Tuesday. On Wednesday, Nio was shooting up higher but because the stock has not surpassed the most recent lower high, the downtrend remains intact.
- Bearish traders can watch for Nio to print a reversal candlestick under the most recent lower high to enter a short position. Bullish traders will want to see the stock regain the eight-day exponential moving average, which could boost the stock up enough to print a higher high to negate the downtrend.
- Nio has a gap above on its chart between $26.41 and $27.22. Gaps on charts fill about 90% of the time, which makes it likely Nio will rise up to fill the empty trading range in the future.
- Nio has resistance above at $21.77 and $23.98 and support below at $20.25 and $16.75.
- Nio has resistance above at $21.77 and $23.98 and support below at $20.25 and $16.75.
See Also: Why This Analyst Is Bullish On 2 China Tech Stocks: NIO And A Solar PV Industry Leader
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