E-scooters have been all the rage in the past couple of years. Much friendlier to the environment and often more convenient as an urban transportation option than cars, electric scooters were quick to gain popularity. Niu Technologies, a Chinese manufacturer, has been bearing the fruits of this trend.
The company’s ADS trade on the NASDAQ exchange under the ticker symbol NIU. Reflecting the growing enthusiasm for e-scooters, the stock is up nearly 420% since July 2019. On the other hand, despite the positive outlook for the industry, NIU shares are down 18% this week. Is this a opportunity to buy the dip or the start of a larger correction? Before we decide, let’s see the chart below.
While there is a revolution-or-fad debate raging on, we’d like to focus on things we can actually see and analyze. The daily chart of NIU reveals that its surge since July 2019 is a textbook five-wave impulse. The pattern is labeled 1-2-3-4-5 with a small first and an extended third wave.
A Revolution or a Fad, Niu Investors Need a Reality Check
According to the Elliott Wave principle, impulse patterns are always followed by a three-wave correction in the other direction. With a bearish reversal already in place, it seems safe to say that NIU stock has entered the negative phase of the wave cycle.
Corrections usually retrace back to the termination level of the fourth wave of the preceding impulse. So, if this count is correct, NIU can fall all the way down to the support of wave 4 near $18 per ADS. From the current price of slightly below $28, this translates into a ~35% drop.
Even if it wasn’t for the clear bearish Elliott Wave outlook, we would still stay away from NIU. From a traditional valuation standpoint, the company is significantly overpriced with an estimated 2020 P/E ratio of 66. A fad? A revolution? It looks like Niu investors are in for a rough landing anyway.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!