NIO stock stages strong intraday recovery on Monday.
Shares opened nearly 4% lower but closed in the green.
NIO breaks the 200-day moving average on Monday.

A volatile day to say the least in NIO stock and one which many retail traders will be trying to get their heads around. A very weak opening was not too unexpected given the carnage across most equity markets. Take your pick from a list of excuses, be it Delta, earnings or profit-taking. Either way the market was in a bad mood, and bears were in charge of the narrative. NIO looked set to crash lower with an ugly open and a straight break of the 200-day moving average. What followed then was surprising, but regular readers of FXStreet will have given more credence to the zone of high volume that had been identified. FXStreet said on Monday that the 100-day moving average would provide the last chance of support before the volume profile and hence support begins to weaken.

This is exactly what played out. The 200-day moving average was broken early on in Monday’s trading, but the 100-day moving average and the psychological $40 level combined to halt the slide. We can also see from the chart just how much volume there is at current levels, meaning the price is moving more slowly here. NIO rallied over $3 or 7% to close up on the day at $43.35, a gain of 1.3%.

Now that the initial move has been stabilized, the hard work begins. NIO has retraced right back to the 200-day moving average. But looking at the 30-minute chart shows how little volume transacted at the low end of the day’s range. It was not until the price rallied that volume picked up. Psychologically, this tells us that there was little if any panic selling, a bullish argument. The point of control for Monday was toward the top of the daily range at $43.39.

Going back to the daily chart, the first obvious test for NIO stock is to retake the 200-day moving average. Once this is achieved, it is back on to trade above the shorter-term moving averages. This will also take out the high of Monday’s candle and produce a bullish engulfing candle. There is still a lot of risk here, but the balance is now favoured to the upside in the very short term for three reasons.

1. NIO staged a huge intraday turnaround, flipping from red to green.

2. NIO should break back above the 200-day moving average on Tuesday.

3. The volume profile is high at current levels, meaning there is decent support around current price levels.

While the risk-reward is favouring gains, it is not a strong risk reward. Breakouts and trends are the strong moves to get on, and there is nothing in sight until $45 is cleared. This makes good risk management even more necessary. The market has turned choppy, and with earnings next week from Tesla, that is likely to continue.

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