NIO Has A Broken Neck! Can we take advantage?NIO is showing a textbook head and shoulders (Bearish) pattern. It is characterized by a change in market structure where the left shoulder forms the initial high and low, the head signifies the continuation and the right shoulder is the failure in the resumption of the trend. In this chart, we notice that the right shoulder fails to make a new high and proceeds to make a new low. By connecting the pivot lows, we can identify a H&S neckline near the $5 mark. We recently fell below this line which is our first signal to enter the short.
Looking for additional confluence, we note that there was significant support that was broken in the pink zone which stems from March 2024. That zone has been tested several times since March 2024. We have also broken below the 200ma which confirms the long-term downtrend. On the most recent candle, we broke below these key levels with above-average spread and above-average volume suggesting strength to the downside. Finally, since Trump has won the presidency, he vowed to increase tariffs, especially for China. This is terrible fundamental news for the Chinese stock.
Aggressive traders may take the short as is and may ride the short to the first target (~$4) which I have identified as a potential support area. There is a second target which is projected by the head and shoulders pattern (~$3.50)
For more conservative traders, we can wait for the retest of the neckline which happens to coincide with the 200 MA and sits just above the former support turned resistance. I like this level better because it provides a better risk-reward ratio.
Key notes: Earnings are coming up in a few days. This could be a volatile event that works in the trade's favor or works against it. Please be aware of that risk while trading.
GLTA
