Nio Inc. is an electric-car company that’s been called the Tesla of China.

But things are not that simple.

Let’s explore the strange case of Nio’s NIO, -6.60% stock-price movements on the New York Stock Exchange and why it shows that risk in the U.S. equity market is underappreciated. The Shanghai-based company debuted Wednesday with American depositary receipts.

Read:China’s Nio may be facing the same issues as Tesla, according to analysts

Chart

Please click here for an annotated chart of Nio’s stock. Please note the following from the chart:

• The indicated price range of the U.S. initial public offering (IPO) was $6.25 to $8.25, as shown on the chart.

• Before an IPO, it is common for companies to conduct a roadshow arranged by their bankers on Wall Street. The company and its bankers travel around and give presentations to potential investors and analysts. The purpose of the roadshow is to generate buying interest and excitement among potential investors so that the company can sell its stock at a high price.

• These days, the indicated price range is often raised due to heavy demand. In this case, the price range was not raised, showing that demand was not there.

• Nio’s IPO was priced at $6.26, a penny off the low point of the range. This indicates that Nio was not successful at persuading investors to pay a higher price.

• There is often a bid by the syndicate right below the IPO price. The purpose of the bid is to not allow the stock price to fall below the IPO price.

• As the chart shows, the stock fell below the IPO price. This did not bode well.

• An analyst put a $4.50 target on the stock.

• As the chart shows, the stock did not move extraordinarily on the first day of trading (Wednesday).

• On the second day (Thursday), the stock took off. There were positive comments by a company executive. (The stock is diving Friday.)

• The VUD indicator is the most sensitive measure of supply and demand in real time. The VUD indicator shown on the chart has been mostly green, indicating real net demand and positive money flows.

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A strange case

Trading in Nio has been strange for five reasons.

1. All of the positive information about the company was available to investors before the IPO, but it did not excite investors.

2. There was no rush for retail investors to buy Nio’s stock after the stock started trading. This indicates that there was no pent-up demand from the retail investors.

3. There was nothing new in the comments by a company executive on the second day.

4. During speculative runs by the momo crowd, the VUD indicator is often orange. In this case, the VUD indicator was mostly green.

5. The trading pattern shows that the buying that caused the run-up was in all probability, in part, institutional and not just retail. Presumably, many institutional investors could have bought the stock in the IPO at a much cheaper price.

Risk to the U.S. market

The IPO was priced at a bubble-like valuation. The trading pattern reminds me of 1999. In 2000, tech stocks crashed, losing significant value. Over the past few days, somewhat similar trading patterns have occurred at various short intervals in AMD AMD, -3.82% , Staar Surgical STAA, -1.89% , Tandem Diabetes Care TNDM, -0.96% and Stitch Fix SFIX, -15.51% . Similar trading patterns have occurred in marijuana stocks Canopy Growth CGC, -8.97% , Tilray TLRY, -12.39% , Cronos Group CRON, -4.89% and marijuana ETF MJ, -6.32% .

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.