Li Auto (NASDAQ:LI) stock is up more than 80% so far this year and a technical analysis is appropriate here.
I don’t consider myself a technical analyst, but technical analysis matters.
Traders look to technical analysis to drive their day. Whether a stock is at the top or bottom of its trading range tells them where to allocate today’s money, and where to take it out.
Investors look at technical analysis differently. If the long-term fundamentals are there, you’re looking for a bad technical chart to maximize multi-year profit. When you’re ready to sell, for college or retirement, you want to know you’re getting the best price possible.
What does technical analysis tell us about Li stock today?
Li Technicals
Last week, technicals were flashing a strong red on Li Auto. Shares hit a peak on July 31 and lost half the year’s gains in just two weeks. Analysts are telling traders to fade the latest rally, and the stock was down nearly 3% in early day trading.
Investors are reading these technical signals differently. While Li is range-bound, the price changing slowly, pivot points are telling long-term investors that this is a good time to buy. It’s unlikely you’ll see a much-lower price, these factors are saying, and the fundamentals are good.
Charts are showing the recent high of $46.85 as a ceiling, and early June’s price of $33.22 as a floor. Short-term indicators are rolling over, while longer-term indicators remain solid.
This means that while traders may be selling Li Auto, technicians are telling investors to buy it. Citigroup (NYSE:C) has raised its one-year price target on the stock to $65, making the latest dip a good entry point.
China Technicals
Of course, buying Li Auto means buying China. Li has not yet begun exporting its hybrid SUVs, which continue to gain share in the home market.
That means looking at the technicians’ views on China can influence your decision on Li.
Those short term technical indicators do not look good. Exports are declining, real estate remains moribund, and there are concerns about government policy.
The chart you’re looking for is that for converting the U.S. dollar to Chinese yuan. Right now, the Yuan is at its cheapest in over 5 years, at 7.33 to the dollar.
This means you can get more Li stock for your money in New York, but it also means you’re getting less value from Li’s profits when they’re converted back.
While China’s stock market is up, the fall in the Yuan offsets this.
China is undergoing a transition, to a post-industrial economy driven by technology. The Biden Administration’s policies are delaying that transition. China’s complaints that those policies are “doomed to fail” are proof they’re accomplishing the goal.
I pulled my money out of China early this year over concerns about Xi Jinping’s policies. A dictator controlling everything, like a closed-source software company, is due to fail over the long run. Growth in a technology economy depends on human capital. Free minds are more motivated to think creatively than chained ones.
The Bottom Line
If you believe in the long-term future of Li Auto, and my articles this summer have offered that hope, now is a good time to buy it. Our David Moadel agrees, suggesting you buy any dips. Real money is being bet on Li.
But every stock, every company, lives in the places where it does business. China’s growth rate is slowing down, and how its government reacts will determine where Li is this time next year.
It’s morning in America, but it may be 2008 for China. How it gets through that will determine whether today’s bullish bets on Li make sense a year from now, far more than any technical analysis.
As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.