• NIO shares get caught in yet another China crackdown.
• NIO is not involved but guilty by association as Chinese stocks suffer.
• Tesla results on Monday were solid, NIO is a peer.

NIO stock continues to be stuck in a sideways range since retreating from a failure to break above resistance at $54.86 back in early July. Since then the stock has retreated as US and China tensions grow increasingly fractured and vociferous. Today we have US defense secretary talking tough on confrontation, and China yesterday described relations between the two countries as being at a stalemate. 

NIO shares are taking the news badly and are trading lower in Tuesday’s premarket at $42.31, down 2%.

Added to the political backdrop has been increased regulatory concerns over Chinese stocks. It seems like a long time ago now, but the ANT Group IPO being pulled was merely the start of China taking an increasing interest in Chinese tech companies and the large amounts of data they handle. Jack Ma appearing to criticize Chinese leadership also played its part and was never going to end well. BABA shares took a beating on this and have yet to recover (see more). 

China then took aim at DIDI, which had just launched on the stock market. This further shook investor’s faith in the Chinese stocks listed in the US and the Invesco Golden Dragon Index has been in a one-way street lately. The exchange-traded fund (ETF) tracks some of the biggest Chinese companies listed in the US. Top holdings are NIO, JD.com, BABA, Baidu, Pinduodou, Bilibili and XPEV among others. The index is down over 20% in the last month as investors grow cautious over China. Cathie Wood of ARK Invest fame has certainly taken the country off the hotlist as her funds have been selling related stocks lately.

NIO has not been directly involved, but the overall picture is one of uncertainty. Markets hate uncertainty, so NIO has been suffering. China over the weekend said it would not allow for-profit tutoring in some core subjects, and a host of China education stocks took a beating on Monday. TAL Education (TAL), New Oriental (EDU) and Gaotu (GOTU) dropped over 20%. Tencent Music (TME) also found itself in the crosshairs as it was forced to give up exclusive digital music rights. ”Even when you think China risk is priced, it can get worse,” Goldman Sachs wrote in a research note.

NIO statistics

NIO stock forecast

Wow, this is getting increasingly tough to call. $40.48 is the small, short-term support, the low from July 19. Breaking it confirms the series of lower lows and so a downtrend. Holding it gives bulls some hope. Breaking $40.48 brings $33 as our next support zone to try, as this is where the recent run took off from. But use a stop as we are not too confident in this level based on the light volume here. FXStreet’s preference is the zone at $27 as the volume is greater here. 

Any recovery needs to take out $46.89 on the way to $54.86. Breaking $40.48, however, could get things moving lower as the volume gets very thin from $37 to $27. 

Given the whole uncertainty around Chinese stocks right now, please have a stop in place to control your risk.