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Shares of NIO Inc. (NYSE:NIO) may continue to rally. Some potentially bullish dynamics have appeared on the chart.
Markets don't go in straight lines. They are more like a series of trading ranges that could look like a staircase. If the market is trending lower, what was the bottom of one trading range could become the top of the next range.
If a market or a stock is trending lower, many investors and traders experience buyer's remorse. They buy a stock only to watch the price drop.
Buyer's remorse can turn what was support into resistance. Many of the disappointed buyers decide to exit their positions at breakeven if they can.
As a result of this, if the price rallies back up to their buying price they place sell orders. If there are enough of these sell orders, the price level that had previously been support can turn into resistance.
This action can be seen with NIO. As you can see on the chart, the $4.85 level was support in late May. Then it converted into resistance in July. Some of the people who paid $4.85 for their shares tried to sell them when it rallied back to their buying price.
The $4.50 level was support in early July. Then it turned into resistance in late July due to the same dynamic. A number of the people who regretted paying $4.50 for their shares were selling when the price rallied back up to this level.
But now an interesting dynamic that may be bullish for the stock has occurred. The $4.28 level was support in July but it did not convert into a resistance level. The shares rallied right through it and are now trading much higher.
This shows that the buyers are no longer experiencing remorse. It has faded away from NIO.
When a market is trending lower support levels will frequently turn into resistance. But when a market reaches a bottom, this stops happening.
The recent price action in NIO suggests that has bottomed. There's a good chance the price continues to move higher.
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Posted In: NIO
