Don't Ignore This Chart!

NIO Takes First Few Steps to Reverse Downtrend

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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:

  1. The last two lows have been accompanied by higher PPOs (positive divergence)
  2. After 4 failures at the declining 20-day EMA (black arrows), NIO is now trending above this moving average
  3. The AD line has moved to a fresh new high despite much lower price, indicative of potential institutional accumulation
  4. 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

Tom Bowley
About the author: is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More
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