The chart says it’s “bye, bye!” not “buy, buy!” time for JD.Com Inc(ADR) (JD) as others might have you believe. And for traders wanting to position for a still large, bearish move in JD, a bearish put strategy offers an affordable way to shop for a larger drop with limited risk.
Shares of China-based online retailer JD are an over-owned hedge fund stock everyone dreams is the next Amazon.com, Inc. (AMZN). In fact, at last count 73 funds including a long “hedge” from notorious short-seller Jim Chanos’ Kynikos Associates were buyers of JD.
But could there be too many cooks in the proverbial kitchen at JD? Unlike AMZN, JD.com’s shares are breaking technical ground to new all-time-lows. Shares of JD were off 3.5% Wednesday and roughly down by 8% on the week.
Aside from their business models, one trait JD.com does share with Amazon is that much like AMZN stock — until very recently at least — JD has shown a knack for generating losses for its shareholders despite or maybe due to strong, but costly, sales growth.
Whether JD.com’s business plan and strategy eventually pay off in the form of future profits and, better yet, a turn in JD’s share price remains to be seen.
What is being seen at the moment in JD, however, is a stock not offering any discount merchandise just yet.
JD Stock Daily Chart
Looking at the daily chart of JD stock, technical support for the bear case is growing.
Bulls possibly clinging to a triple bottom developed since last August’s flash crash low are now facing a busted pattern and little in the way of support — other than hoping for a failed breakdown.
Having said that, given JD’s dismal price action relative to its peers and the broader markets, this strategist believes the real technical design in JD stock is for lower prices out of a bearish, inverse cup-with-handle pattern.
Using a conservative measurement from both cups, it’s estimated JD will easily break below its 2014 post-IPO low of $20.10 and could move into the low to mid-teens in its own version of a Dot com crash over the coming months.
JD Bearish Long Put Strategy
JD options premiums are currently middle-of-the-road relative to this past year’s trading range. With prices also fair compared to underlying stock volatility; I like approaching JD with a long put strategy to initiate a bearish position.
In reviewing the JD options board, the September $19 put is attractive. Priced at $1.05, the trader’s expiration breakeven of $17.95 is well above our estimated price target in the low-to-mid-teens.
Additionally, should JD continue to slide lower, interim profits are expected to build nicely. Implied volatility typically rises and becomes a secondary benefit for this bear as other investors look to pay more retail-like prices for protection on their prior bargain in JD stock.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. Mr. Tyler currently holds no positions in any of the securities discussed in his personal or managed family accounts but may initiate, for better or worse, a position in two or more business days following the publication of this article.
