Every momentum stock has a fascinating story to tell. Nio stock, the Chinese version of Tesla has been on a crazy momentum run but here’s the trigger that started the bull run and resulted in sustainable momentum.
Once Upon a time [Jan 2020-middle of August 2020]
Nio stock sold off due to covid but then broke past the $5 mark and rallied to $15. It was a stock that was already up 3x in just 2 months. Now anybody could have just dismissed the stock as a bubble way back in August 2020 but if you follow price action, you would have never done that.
Momentum is not driven by Valuations. It is driven by human behavior. All you have to do: Look for +ve triggers and Bullish Price Action
Investors got excited by the newsflow and the stock made a new high
When a stock makes a new high on the back of fundamental newsflow, then it creates sustainable momentum. I recommended Nio around $17-$18
– yes it looked ridiculous back then but here’s how the momentum eventually played out
As you can see in the chart above, the stock made a new high above 16 on the back of their initiative on BaaS. It turned out to be the starting point. Now, even if you got bullish at $17, which I did recommend, the stock rallied another 3x to $51, that’s how intense momentum works out. Now nobody knows how high a stock can go but this price action is a classic reminder of how momentum works out in a pretty short period of time.
Price Action Analysis [The US stock market]
Fundamentals don’t drive stock prices.
How people perceive those fundamentals drive stock prices.
As a market participant/trader, keep an eye on how the market views the fundamentals than being obsessed with your own version of fundamentals. It means look at the price action and it tells you without bias what the market thinks about the stock. Once you read the price action, go and find the reason why the market has such a view on the stock, and be aligned with it.
This is the level one mind training every individual requires to be in sync with market thinking. This is the real fundamental of Investing. I call it Science of Stock Price Action
If price action fascinates you and you invest in the US stock market – then price2action.com is a great place to start.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers