On Sunday evening, Benzinga asked its followers on Twitter what stock they’re zeroed in on this week. From the replies, Benzinga selected one ticker for technical analysis.
@marcos_pinel and @Narayanan_A responded to say they’re focusing in on Nio, Inc NIO
The China-based electric vehicle maker was trading slightly lower on Monday after a rally on Friday caused Nio to close up over 4% higher. This came after Nio broke up from a descending trendline on Thursday, which Benzinga called out on Aug.1 as a likely move.
The upward break from the trendline also caused Nio to confirm it’s trading in an uptrend on the daily chart.
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.
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The Nio Chart: Nio’s most recent higher high within the uptrend was printed on Thursday at $21.97 and the most recent confirmed higher low was formed at the $19.01 mark on Aug.9. On Friday, Nio back tested the descending trendline as support and held above the level, which indicates a larger reversal to the upside may be in the cards.
- On Monday, Nio was also forming an inside bar pattern on the daily chart. The inside bar leans bullish in this case, but traders can watch for a break up or down from Friday’s mother bar later on Monday or on Tuesday to gauge future direction. Traders will want the break to come on higher-than-average volume for confirmation the pattern was recognized.
- 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. The top of the gap is about 30% above the current share price.
- If Nio is able to continue in its uptrend to eventually fill the upper gap, the stock will also regain the 200-day simple moving average (SMA) as support. The 200-day SMA is an important bellwether indicator that suggests whether a stock is trading in a bull or bear cycle. For the short-term, Nio is holding support at the eight-day and 21-day exponential moving average, which is bullish.
- Nio has resistance above at $21.77 and $23.98 and support below at $20.25 and $16.75.
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