Once a previously-leading stock begins a journey to the downside, you want to be careful pulling the buy trigger too soon. These downtrends can last awhile, so expecting a quick recovery and buying a pullback can create a lot of short-term pain in your pocketbook. The better option is to recognize those traits of a downtrending stock and wait for price action to begin erasing those downtrending tendencies.
Let me illustrate this point with NIO, Inc. (NIO). Here's a 6-month chart:
There are a few hints on this chart that suggest NIO may have bottomed:
- The last two lows have been accompanied by higher PPOs (positive divergence)
- After 4 failures at the declining 20-day EMA (black arrows), NIO is now trending above this moving average
- The AD line has moved to a fresh new high despite much lower price, indicative of potential institutional accumulation
- NIO appears to have broken its relative downtrend line vs. its peers
I'd look at NIO as if its downtrend has ended, especially given that we're in a secular bull market. I wear my bull market rose-colored glasses when looking at charts as most patterns resolve bullishly. Note that the descending triangle would have suggested a breakdown. Instead, NIO broke to the upside.
NIO reports its quarterly earnings on Thursday, April 29th after the market closes. Many companies see pre-earnings advances; perhaps NIO's is now underway. On Monday, I'll be discussing Q1 earnings reports - both those already released as well as those that are upcoming. This is an EarningsBeats.com Members-Only event, but if you'd like more information, CLICK HERE.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
