uploads/2020/06/conclusion-of-the-contract-3100563_1280.jpg

Why NIO Stock Might Remain Overbought for a While

By

Updated

NIO (NYSE:NIO) stock has risen for four consecutive weeks. The stock has netted a return of 94% to its investors in less than a month.

Article continues below advertisement

NIO stock is on fire

After declining by 37% last year, NIO has seen a lot of positive news in the last few months. The company’s fortunes started turning around after it struck a 7 billion yuan financing deal with the Hefei government in April. Macroeconomic trends also supported the stock. Meanwhile, the auto demand started recovering in China.

Tencent lifts stake in NIO

The latest catalyst for NIO’s stock price was the increase in Tencent’s (OTCMKTS:TCEHY) stake in the company. In general, EV stocks have been on fire in 2020. Since many traditional businesses have struggled, investors look for sustainability with the promise of future growth. EV companies seem to fit that bill.

Article continues below advertisement

Investors’ interest in EV stocks

Notably, Tesla (NASDAQ:TSLA) has risen by 138% year-to-date. Nikola (NASDAQ:NKLA), an EV and hydrogen cell vehicle maker, has returned 107% since its NASDAQ debut on June 4. The shorts in these companies are having a hard time. Read Why are Shorts in TSLA, NIO, and NKLA Getting Burned? to learn more. Another company associated with EVs, Ideanomics (NASDAQ:IDEX) has also been on a gaining spree. On Tuesday, the stock gained 48% after it announced that it got an order for 200 EVs in China.

NIO stock looks overbought on technical indicators

Now, let’s come back to NIO. After the stock’s stupendous rise, is there more steam left in the stock or is it ripe for a pullback? From a technical perspective, the stock definitely looks overbought. The stock has a 14-day RSI (relative strength index) of 75.6. An RSI above 70 implies an overbought level. NIO’s stock price is also trading 29% and 72% above its 20-day and 50-day moving averages, which means that the stock could pullback. However, investors should note that assets could remain in the oversold or overbought territory for a long time.

Will NIO remain overbought for a while?

NIO stock has been rising lately due to the strong fundamental push. On Tuesday, the stock hit a fresh 52-week high. In such a strong uptrend, the stock could remain overbought for a while. Also, if you’re convinced by the stock’s long-term fundamental drivers, a pullback should offer an opportunity to accumulate more. NIO’s largest investor, Baillie Gifford also thinks that NIO stock is worth much more. Read NIO Stock at $10: Is It Closer than It Seems? to learn more about the stock’s fundamental drivers.

Advertisement

More From Market Realist