Consumer Discretionary / Industrials

Henry Kwon

Equity Bottom-Up

NIO closed at $34.06 on Friday, failing to close above its 10-Day EMA of $34.42, although the stock climbed as high as $34.78 intra-day. DCF analysis using consensus FCF forecast suggests that currently NIO's shares may be implying a 18.1% perpetuity growth outlook which would be bearish if the yield curve continues to steepen. While fundamental valuation implications do not necessarily become reflected in stock prices over a short period, Friday's technical chart alignment could signal further bearish short term price action.<ul>
<li>
Bearish Technical Alignment on Friday: Dark Cloud Cover was formed on the daily candlestick chart on Friday. While the pattern needs to be confirmed on Monday, it may be a new bearish signal to what looks like an impending death cross that I mentioned in <a href="https://www.smartkarma.com/insights/nio-is-it-re-entry-point-yet" target="_blank" data-smartkarma-citation="insights:51824" rel="noopener">NIO: Is It Re-Entry Point Yet?</a> on May 20.</li>
<li>
DCF Analysis Reality Check: At current share price, 3-year consensus FCF forecast and 1Q21 balance sheet details suggest that the market may be implying a 18.1% perpetuity growth rate and 139x terminal EBITDA multiple assumption. Long term fundamental valuations therefore would suggest there is further downside risk, but having said this, I would point out that other catalysts can often impact short term price action more strongly.</li>
<li>
Systemic Risk could be a greater concern than company risk at this point: NIO remains a high beta EV play. While the 10-year Treasury yield looked more stable on Friday, any sudden spike in the Treasury yield can have a sharp negative effect on EV stock valuations.</li>
<li>
A Short term Bullish Scenario: If the stock manages to reject the Dark Cloud Cover formation on Monday and close above its 10 day EMA, the move may accelerate price recovery with the first resistance level coming in at the 21 day EMA currently fixed at $35.68. Clearing these two hurdles may accelerate the upward momentum to the $38.19 - $38.67 zone, which represent the stock's current 200 DMA and the 61.8% Fibonacci Retracement, respectively.</li>
<li>
A Short term Bearish Scenario: If Dark Cloud Cover is confirmed first support should come in at the stock's 78.6% Fibonacci Retracement at $30.98 which basically held recently. If the stock breaks below this level, however, the decline may accelerate towards the $20-22 zone last seen in October, 2020, over the next few trading sessions.</li>
</ul>Operating environment for NIO remains constructive. 3 month moving average sales volume comparison with XPEV and TSLA suggests NIO's volume sales have been more stable than its peers. Continuing sales growth in the context of overall improvement in 2021 auto demand and continuing tailwinds from the new car effect (EC 6) looks constructive for earnings implications over the next 1-2 quarters at current pace. At this point, therefore, we see more price risk stemming more from systemic risk than company risk.

NIO closed at $34.06 on Friday, failing to close above its 10-Day EMA of $34.42, although the stock climbed as high as $34.78 intra-day. DCF analysis using consensus FCF forecast suggests that currently NIO's shares may be implying a 18.1% perpetuity growth outlook which would be bearish if the yield curve continues to steepen. While fundamental valuation implications do not necessarily become reflected in stock prices over a short period, Friday's technical chart alignment could signal further bearish short term price action.

Bearish Technical Alignment on Friday: Dark Cloud Cover was formed on the daily candlestick chart on Friday. While the pattern needs to be confirmed on Monday, it may be a new bearish signal to what looks like an impending death cross that I mentioned in NIO: Is It Re-Entry Point Yet? on May 20.

DCF Analysis Reality Check: At current share price, 3-year consensus FCF forecast and 1Q21 balance sheet details suggest that the market may be implying a 18.1% perpetuity growth rate and 139x terminal EBITDA multiple assumption. Long term fundamental valuations therefore would suggest there is further downside risk, but having said this, I would point out that other catalysts can often impact short term price action more strongly.

Systemic Risk could be a greater concern than company risk at this point: NIO remains a high beta EV play. While the 10-year Treasury yield looked more stable on Friday, any sudden spike in the Treasury yield can have a sharp negative effect on EV stock valuations.

A Short term Bullish Scenario: If the stock manages to reject the Dark Cloud Cover formation on Monday and close above its 10 day EMA, the move may accelerate price recovery with the first resistance level coming in at the 21 day EMA currently fixed at $35.68. Clearing these two hurdles may accelerate the upward momentum to the $38.19 - $38.67 zone, which represent the stock's current 200 DMA and the 61.8% Fibonacci Retracement, respectively.

A Short term Bearish Scenario: If Dark Cloud Cover is confirmed first support should come in at the stock's 78.6% Fibonacci Retracement at $30.98 which basically held recently. If the stock breaks below this level, however, the decline may accelerate towards the $20-22 zone last seen in October, 2020, over the next few trading sessions.
Operating environment for NIO remains constructive. 3 month moving average sales volume comparison with XPEV and TSLA suggests NIO's volume sales have been more stable than its peers. Continuing sales growth in the context of overall improvement in 2021 auto demand and continuing tailwinds from the new car effect (EC 6) looks constructive for earnings implications over the next 1-2 quarters at current pace. At this point, therefore, we see more price risk stemming more from systemic risk than company risk.

NIO: Dark Cloud Cover with Close Below the 10-Day EMA on Friday May Add A Short Term Bearish Signal

Chief Economist

Diana Choyleva

Enodo Economics

Enodo Economics is an independent macroeconomic forecasting company that untangles complexity, challenges the consensus, and makes sense of the future. Our focus is on China – one of the most misunderstood economies in the world, but one of the most important to figure out.  Enodo’s chief economist, Diana Choyleva, has been analysing China for almost 20 years, while Enodo’s team boasts a combined 140 years’ experience covering China’s economy, politics and markets. 

Macroeconomics

<h2>China News That Matters</h2><ul>
<li>Cracking down on cryptocurrency</li>
<li>And on Big Tech too</li>
<li>World-beating vaccination rates</li>
<li>“Cold War mindset and gross interference” </li>
<li>You sent your battleship!</li>
</ul><div class="content-remarks">In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.</div>

China News That Matters
Cracking down on cryptocurrency
And on Big Tech too
World-beating vaccination rates
“Cold War mindset and gross interference” 
You sent your battleship!
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

Crypto/ Tech/ Covid-19/ US-China/ UK-China

Bond market data and technology, BondEvalue

BondEvalue

Bond market data and technology

BondEvalue is a Singapore-based Fintech that specializes in bond market data and technology. The company's information services business offers bond market data on hard-currency corporate & sovereign bonds across Asia, Middle East, Europe and the Americas. The data, which includes bond prices, yields, news and analytics, is offered to end investors via interactive Mobile and Web Apps. Investors can sign up for a free trial of the service either via the company's website (https://bondevalue.com) or by downloading the BondEvalue Mobile App (http://onelink.to/wej7jq). BondEvalue is also developing an electronic bond exchange, BondbloX in Singapore that allows investors to trade bonds electronically in smaller sizes (US$1,000 or equivalent). For more information, visit https://www.bondblox.com/

Bond Market Data and Technology

Credit

US markets broke the three day falling streak led by Tech stocks. S&amp;P ended higher by 1% and Nasdaq was up by 1.8%. Tesla gained 4.1%, Apple rose 2.1% and Nvidia was up 3.9%. US 10Y Treasury yields fell ~3bp to 1.63% on the back of weaker than expected US Philly Fed manufacturing reading in May at 31.2, falling from 50.2 in April. On the other hand, US jobless claims dropped to 444k, better than expectations and indicating labor market momentum. European Indices were also up with DAX leading the gains, up 1.7% followed by CAC at 1.3% and FTSE at 1%. US IG CDS spreads were 0.7bp tighter and HY spreads were 4.4bp tighter. EU main spreads were 0.5bp tighter and crossover spreads widened 3bp. Asian equities started the day modestly lower ~0.3% with Asia ex-Japan CDS spreads widening 3.6bp.

Macro; Rating Changes; New Issues; Talking Heads; Top Gainers & Losers

NIO dipped slightly below the 78.6% Fibonacci Retracement level of $30.98 at $30.71 on an intra-day basis on May 13 before clawing its way back up to close at $34.35 today, slightly below its 10-day EMA of $34.50 on light volumes. The question now becomes whether we have seen short term bottom for the shares, or if it has further downside risk. As of close today, the stock's 50 DMA looks like it may be on a downward path to cross the 200 DMA over the next few trading sessions, and this is a key short term indicator that I think investors should keep in mind. While the big trend continues to point downwards, however, the stock also looks as if it might be currently searching for bottom based on patterns from the past few trading sessions.The following bullet points outline my thoughts on the operating environment fundamentals for the stock. On the question of re-entry point, I am inclined to wait and see whether the shares can consolidate and close above the 10-day EMA as the first hurdle. The next point would be to see if it can avoid what looks like an impending death cross over the next few trading sessions.<ul>
<li>
New Model Intro Benefits to Extend to 3Q: The ES8 refresh in April, 2020 and the EC6 launch in September, 2020, have led to a very nice sales growth for NIO since the beginning of the year. I believe it likely that delivery momentum should continue to show strength through 3Q21.</li>
<li>
Passenger Vehicle Demand Trending at 6.5% YoY in 2021:Average PV SAAR (Seasonally Adjusted Annualized Rate) through April is suggesting that China PV demand is trending at 6.5% YoY growth in 2021. This will likely provide a fundamental tailwind for auto demand in general especially with government subsidies remaining in place for the rest of the year.</li>
<li>
Much of China's EV demand remains rooted in the A-segment: This has more to do with per capita GDP and discretionary income than anything else. Much of China's BEV demand continues to come largely from A-segment products such as the Wuling Mini and the Baojun Eseries vehicles at lower price points for the mass segment (see <a href="https://www.smartkarma.com/insights/tesla-tsla-a-few-thoughts-on-the-china-plant-announcement" target="_blank" data-smartkarma-citation="insights:22077" rel="noopener">Tesla (TSLA): A Few Thoughts on the China Plant Announcement</a> published back in 2018 for details on my thinking on the evolutionary nature of segment shift). This will likely cap the growth rates of premium BEV producers from dominating the entire EV market in China over a medium term horizon.</li>
</ul>The market's concern over inflation and a potential for the yield curve to steepen strongly remains a key valuation concern for growth stocks listed on NASDAQ in my view. NIO is an emerging market stock listed on NASDAQ which can potentially lead to greater volatility than market volatility.

NIO dipped slightly below the 78.6% Fibonacci Retracement level of $30.98 at $30.71 on an intra-day basis on May 13 before clawing its way back up to close at $34.35 today, slightly below its 10-day EMA of $34.50 on light volumes. The question now becomes whether we have seen short term bottom for the shares, or if it has further downside risk. As of close today, the stock's 50 DMA looks like it may be on a downward path to cross the 200 DMA over the next few trading sessions, and this is a key short term indicator that I think investors should keep in mind. While the big trend continues to point downwards, however, the stock also looks as if it might be currently searching for bottom based on patterns from the past few trading sessions.The following bullet points outline my thoughts on the operating environment fundamentals for the stock. On the question of re-entry point, I am inclined to wait and see whether the shares can consolidate and close above the 10-day EMA as the first hurdle. The next point would be to see if it can avoid what looks like an impending death cross over the next few trading sessions.

New Model Intro Benefits to Extend to 3Q: The ES8 refresh in April, 2020 and the EC6 launch in September, 2020, have led to a very nice sales growth for NIO since the beginning of the year. I believe it likely that delivery momentum should continue to show strength through 3Q21.

Passenger Vehicle Demand Trending at 6.5% YoY in 2021:Average PV SAAR (Seasonally Adjusted Annualized Rate) through April is suggesting that China PV demand is trending at 6.5% YoY growth in 2021. This will likely provide a fundamental tailwind for auto demand in general especially with government subsidies remaining in place for the rest of the year.

Much of China's EV demand remains rooted in the A-segment: This has more to do with per capita GDP and discretionary income than anything else. Much of China's BEV demand continues to come largely from A-segment products such as the Wuling Mini and the Baojun Eseries vehicles at lower price points for the mass segment (see Tesla (TSLA): A Few Thoughts on the China Plant Announcement published back in 2018 for details on my thinking on the evolutionary nature of segment shift). This will likely cap the growth rates of premium BEV producers from dominating the entire EV market in China over a medium term horizon.
The market's concern over inflation and a potential for the yield curve to steepen strongly remains a key valuation concern for growth stocks listed on NASDAQ in my view. NIO is an emerging market stock listed on NASDAQ which can potentially lead to greater volatility than market volatility.

Latest News from the World’s Leading Innovators

Granite Bay Capital

An innovation focussed investment company

Granite Bay Capital is an innovation focussed investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity.

Thematic (Sector/Industry)

It’s a bad week for crypto, with bitcoin off ~30%.  Firstly, Elon Musk has done a U-turn, now not accepting bitcoin as payment for Tesla due to environmental concerns.  He may also wind down the company’s position in the asset.

It’s a bad week for crypto, with bitcoin off ~30%.  Firstly, Elon Musk has done a U-turn, now not accepting bitcoin as payment for Tesla due to environmental concerns.  He may also wind down the company’s position in the asset.

United States

Tesla Inc. operates as a multinational automotive and clean energy company. The Company designs and manufactures electric vehicles, battery energy storage from home to grid-scale, solar panels and solar roof tiles, and related products and services. Tesla owns its sales and service network and sells electric power train components to other automobile manufacturers.

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Tesla (TSLA US)

NIO: Dark Cloud Cover with Close Below the 10-Day EMA on Friday May Add A Short Term Bearish Signal

Dark Cloud Cover bearish reversal pattern was formed on Friday's daily candlestick chart, while a DCF analysis based on current 3-year consensus...

Henry Kwon

Crypto/ Tech/ Covid-19/ US-China/ UK-China

In my weekly digest, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and...

Diana Choyleva

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US markets broke the three day falling streak led by Tech stocks. S&P ended higher by 1% and Nasdaq was up by 1.8%. Tesla gained 4.1%, Apple...

BondEvalue

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NIO dipped slightly below the 78.6% Fibonacci Retracement level on May 13 then climbed back to close slightly below its 10-day EMA today. Good...

Henry Kwon

Weekly Innovation Review (WIRE) #32

Subscribe nowHeadline Developments It’s a bad week for crypto, with bitcoin off ~30%. Firstly, Elon Musk has done a U-turn, now not accepting...

Granite Bay Capital

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