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As Its Bearish Cycle Ends, It’s Finally Time to Buy Nio

Government regulations, a controversial crash and other drags sent Nio (NYSE:NIO) shares on a detour south. But looking down the road, does today’s discounted…

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This article was originally published by Investor Place

Government regulations, a controversial crash and other drags sent Nio (NYSE:NIO) shares on a detour south. But looking down the road, does today’s discounted price in NIO stock offer investors an attractive purchase?

Source: xiaorui / Shutterstock.com

Let’s examine the evidence both off and on the price chart, then offer a risk-adjusted determination aligned with those findings.

It’s been anything but an enjoyable ride in Chinese electric vehicle (EV) upstart Nio in recent weeks.

Since early July, shares of NIO stock have skidded lower by roughly 30%. And unlike the Nasdaq or S&P 500, it’s not as though it was parked at all-time-highs and priced for profit-taking. Pressure on Nio shares came just as the EV luxury upstart was finally turning the corner on a painful correction.

At its worst, the bearish cycle resulted in shares losing more than 50% over the spring from NIO stock’s January all-time high. So, what’s gone wrong for one of 2020’s strongest stock plays?

A Cooling EV Market and Government Regulations

Actually, there’s been no shortage of threats this year that have been responsible for NIO stock’s relative and absolute price weakness.

For one, there’s the inevitable unwinding of unsustainable price momentum. NIO shares did gain more than 3,200% this past year on the back of an overheated EV market, which jettisoned shares out of their Covid-19 bear market low.

This year’s broad-based rotation out of higher-multiple growth stocks has been another obvious headwind. Even Tesla (NASDAQ:TSLA), the world’s largest EV outfit, struggled in 2021 as investors collectively swapped into cyclical and value stocks at the expense of growth.

That’s not all that’s had Nio investors beside themselves. De-listing threats of Chinese securities by U.S. regulators has been another drag on shares.

Another related factor is the Chinese government. Its persistent actions against big tech companies such as DiDi Global (NYSE:DIDI) and Alibaba (NYSE:BABA) over national security concerns have challenged the shares despite no wrongdoing on the part of Nio.

That’s not to say NIO stock is free and clear of guilt. The specter of wrongdoing is facing Nio following a fatal crash with the company’s self-driving system engaged.

Making matters worse, an investigation into the fatality has also resulted in a probe to see if Nio tampered with evidence. The company is alleged to have deleted or modified the wrecked vehicle’s data.

NIO Stock Weekly Price Chart

Nio (NIO) higher low pattern in place for skewed risk versus reward situation in NIO stock
Source: Charts by TradingView

It may seem NIO stock has an insurmountable number of obstacles in its path. As expressed though, investors have dutifully priced in those concerns this year. And today, there are improving signs that the bearish cycle is nearing its end.

Technically, and as the provided weekly chart reveals, shares of NIO stock have pulled back into a mostly lateral test of the May and June 76% retracement level over the past month.

If successful, the challenge will put together a higher-low pattern within Nio’s larger corrective cycle of the past eight months. And if we’re anticipating a breakout in the months ahead, today’s technical risk pales next to the upside potential.

Coupled with an equally supportive stochastics setup and Nio’s mostly-ignored growth prospects, a long entry appears enticing.

For investors open to buying NIO stock but wanting to remove the always-real possibility of larger downside risk — or tactically accumulate shares on weakness — an October $35/$45 collar is a favored starting position.

On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

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Energy & Critical Metals

Renewables Not So Reliable As US Hydropower Plunges 14%

Renewables Not So Reliable As US Hydropower Plunges 14%

The transition away from hydrocarbons is not a seamless as many hope. The latest data…

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Renewables Not So Reliable As US Hydropower Plunges 14%

The transition away from hydrocarbons is not a seamless as many hope. The latest data from the Energy Information Administration (EIA) shows a significant decline this year in hydropower generation amid historic droughts. 

The magical thinking about renewable energy and President Biden's calls for the U.S. power grid to be 100% clean by 2035 is a pipe dream. 

The problem with renewable energy is sustainability. California and states in the Pacific Northwest have found out that out the hard way this summer as droughts and back-to-back heat waves have led to a plunge in hydropower capacity. The region produces a bulk of U.S. hydropower capacity. 

EIA estimates U.S. hydropower plants will be 14% lower in 2021 than it was in 2020. Hydropower generation in the Northwest, which includes the Columbia River Basin and parts of other Rocky Mountain states, is expected to be 12% lower than the prior year. Hydropower generation in California will be down a shocking 49% in 2021 than in 2020.

The dry conditions have reduced water levels across large parts of the Columbia River Basin this summer, drought emergencies were declared in counties across Washington, Oregon, and Idaho. Some reservoirs in California halted hydropower generation due to declining water levels. 

Between March and April, hydropower generation in Washington and Oregon was 10% below the 10-year range. Over the summer, hydropower generation in these states moved back within range. But in California, hydropower generation stayed below the 10-year range as the Edward Hyatt Power Plant at Lake Oroville went offline due to low water levels last month. 

This summer, California's energy challenges show the state's aggressive push to slash carbon emissions by shifting to renewable energy has its disadvantages. The state's top grid operator, California Independent System Operator (CAISO), requested and was granted an emergency measure by the federal government to fire up natural gas generation plants to prevent blackouts amid the loss of some renewable energy sources. 

Maybe it's time for California to admit their "green" push has been a complete disaster, and the transition is not going to be as seamless as once thought. But wait, they already have:

The short-term strategy for California has been to fire up fossil fuel generation plants as renewable energy sources become unreliable. This is just one ugly truth about renewable power the progressives don't want you to hear. 

Tyler Durden Fri, 09/24/2021 - 22:20
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Energy & Critical Metals

Personal Tracking Devices Moving Toward A “Dangerous” New Era

Personal Tracking Devices Moving Toward A "Dangerous" New Era

Tracking devices can sometimes be useful: you can attach one to your phone or…

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Personal Tracking Devices Moving Toward A "Dangerous" New Era

Tracking devices can sometimes be useful: you can attach one to your phone or wallet and know where it is at all times, for example.

But the Bluetooth and ultra-wideband (UWB) tracking devices are moving towards a "dangerous new era", according to a new writeup by Android Authority

The devices are getting so small, prominent and widely available that risks of both stalking and general surveillance using them can no longer be ignored, the piece argues. 

It calls stalking the "biggest and most obvious threat". It can happen when a tracker, usually a thin tile-like piece of plastic, gets slipped into someone's bag, vehicle or clothing, tracking them everywhere they go. 

One such instance of stalking took place in 2018 when  a woman in Houston said she found a Tile planted inside the console of her car, which her ex was using to follow her. The ex was charged with a misdemeanor as a result.

Even overaggressive parents could take advantage of the trackers, the article argues: "An abusive husband could use trackers to follow their spouse to a shelter or the police. An overprotective mother could prevent their child from going anywhere but home or school."

Surveillance is another way trackers can be abused. Android Authority writes:

The more items a person tracks through first- or third-party apps, the more comprehensive surveillance can theoretically become. Let’s say you have a tracker on your backpack or laptop. If your phone and the tracker leave for a specific place every morning, it’s not hard to guess that the origin is your home, and the destination is an office or worksite. Placing another tracker on a TV remote immediately confirms your home location, and if you’re monitoring headphones or a personal electric vehicle, hackers can pick out some of your favorite haunts, like parks or the gym.

Hacking into a phone could even allow an attacker to figure out where in a building devices are kept, or where a specific person sits and sleeps, the report says: "In the wrong hands, this data could be used to plan burglaries or even murders."

Tracking apps could eventually even become the target of ransomware attackers, the piece suggests. And, with everything from shoes to cars in the future moving toward being trackable, you may not even know when or how you're being watched. 

Finally, the idea of government intrusion using such apps and trackers also becomes an obvious cautionary point. "More trackers translate into more data points for surveillance and suppressing dissent," the piece concludes.

Tyler Durden Fri, 09/24/2021 - 21:00
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Energy & Critical Metals

Nio Stock’s Slide Likely Isn’t Over as Broader Correction Looms

When I wrote about Nio (NYSE:NIO) last month, I argued that the risks that could send NIO stock lower outweighed factors that could help it bounce back.
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When I wrote about Nio (NYSE:NIO) last month, I argued that the risks that could send NIO stock lower outweighed factors that could help it bounce back.

Source: Robert Way / Shutterstock.com

The Chinese electric vehicle (EV) maker has numerous strengths, such as high projected rates of growth in its home market. It also has the potential to go global, first in Europe, and then possibly in other key markets like the United States.

However, I believe the company’s rich valuation and jurisdictional risk from China outweigh these positives. What’s more, the stock has taken a hit on concerns about the potential collapse of Chinese property development giant Evergrande (OTCMKTS:EGRNF).

In my opinion, NIO stock is nowhere near bottoming out and likely to move lower in the short term.

High Growth Far From Guaranteed

While NIO stock is down 47% from its all-time high of just below $67 per share, made in January, there’s still a good deal of enthusiasm surrounding the company.

The main driver of that enthusiasm is the company’s high projected levels of growth. Analysts forecast revenue will surge 120% this year and 65% in 2022.

Depending on how Nio’s expansion into Norway goes, growth from Europe could cause analysts to raise their growth forecasts. This could also help counter a growth slowdown in China. Nio faces stiff competition in the Chinese EV market from local rivals such as Xpeng (NYSE:XPEV), as well as from the likes of Tesla (NASDAQ:TSLA).

Despite the high-growth forecast, I do not expect sentiment for NIO stock to shift back to prior levels of bullishness for two reasons.

First, it’s not guaranteed that the company’s rate of growth will stay as high as it’s been in recent quarters. The global chip shortage resulted in Nio’s August vehicle deliveries falling by 25.9% on a month-over-month basis and caused management to cut its delivery outlook for the current quarter (ending Sept. 30). With the chip shortage expected to drag on, it may affect results in subsequent quarters as well. A Chinese economic slowdown, even if the Evergrande crisis gets under control, could also negatively affect sales growth going forward.

Second, the company’s European expansion could fail to deliver. If Nio stumbles in Norway, it may signal it doesn’t have what it takes to become a global EV brand.

Given these two big unknowns, I don’t see much to prevent NIO stock from tumbling if the broader market turns lower.

Downside Risk High if Appetite for Growth Stocks Wanes

With the odds of a correction climbing, it may be best to tread carefully with growth stocks. Whether caused by changes in Federal Reserve policy, or factors like slowing economic growth, it seems all the more likely that the runaway bull market is about to reverse course.

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In the event of a broader market pullback or correction, investors will shift out of speculative growth plays like NIO stock and into safer plays. This is likely to be the case even if the company meets expectations.

If Nio faces the double-whammy of disappointing results and a rocky stock market, look out below. While shares probably won’t head back to the low single-digits, investors can expect an outsized pullback compared to the broader market.

The Bottom Line on NOI Stock

Hopes for this popular EV maker run high, but the ongoing chip shortage and a slowing Chinese economy may stop Nio’s revenue growth in its tracks. And the risk of a pullback is being exacerbated by a weakening broader market.

I think there is a high probability that NIO stock trades back down to $25, or even $20 per share. So, it’s best to stay away for now.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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