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Nio Is Breaking Out - Here's the Trade

Nio is breaking out to all-time highs on Wednesday. Let's look at the charts and see how far this one could go.

Nio  (NIO) - Get NIO Inc. Sponsored ADR Class A Report has been resilient lately. The stock was up another 3% on Wednesday, bringing its weekly gain to 17%.

The move helped send the stock to all-time highs as Nio is on the cusp of a potentially large breakout.

The electric vehicle maker hasn’t skipped a beat, even though others in the space have been more volatile.

Tesla  (TSLA) - Get Tesla Inc Report, the leader in the EV space, has held up well given its stellar rise over the summer. However, its share price has been swooning in recent weeks. Nikola  (NKLA) - Get Nikola Corp. Report has also been volatile, as the company is hit with short reports and plenty of drama.

None of that has seemed to matter for Nio, though. Let’s take a look at the charts as the stock is at new highs.

Trading Nio Stock

Daily chart of Nio stock.

Daily chart of Nio stock.

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Take a minute to appreciate the steady trend of what’s supposed to be a volatile stock.

In the beginning of July, Nio had two back-to-back powerful gap-up rallies, which sent shares from $8 to $11 in just two trading sessions. From there, a very orderly uptrend support mark (blue line) has guided the stock higher.

It’s been months since Nio has tested its 50-day moving average and eventually, that will no longer be the case. But for now, the trend still favors the upside.

On Tuesday, Nio rallied up toward $21 resistance, which rejected Nio earlier this month and in August. That was around when Nio raised more capital. Gapping over $21 now, Nio also temporarily cleared the 161.8% extension (for the entire trading range) at $21.59.

I would love to see shares close above this mark. If Nio does, it opens up a potentially explosive move into the low- to mid-$20s. If it really gains momentum in the fourth quarter, it could put the two-times range extension on the table at $26.41.

On the downside, look to see if shares fail to close above current resistance. If Nio can’t close above $21 and fails to reclaim this area, then it could retreat.

In that case, aggressive bulls will have their eye on the stock near the 10-day moving average, but I’d rather give it another shot at uptrend support, which has been intact for months now. Below that could put the 50-day moving average in play, which I would expect to at least provide a bounce on its first test.