By most accounts, JD.Com Inc (ADR) (NASDAQ:JD) should be edging higher. JD stock recently teamed up with Tencent Holdings Ltd (OTCMKTS:TCEHY) to take on rival Alibaba Group Holding Ltd (NYSE:BABA) and is now cross-marketing its rewards program with the one employed by Wal-Mart Stores Inc (NYSE:WMT). It’s even wading into waters mostly controlled by Secoo Holding Ltd – ADR (NASDAQ:SECO) by getting into the luxury goods business.
And yet, despite all this, JD stock is hanging by a thread, testing major support levels. The JD stock price chart has also traced a very concerning bearish pattern. One more bad day could push the stock past the tipping point.
Technical Trouble Ahead for JD Stock
The news for JD stock is compelling, not the least of which is how Tencent and JD.com are pairing up to create a platform that helps online and offline retailers use data to gain a better insight on their customers. The partnership has been in place for three years, but with Alibaba bearing down in the customer data arena, JD and Tencent are stepping up their game.
JD.com and Walmart are also finding new ways to bring customers into their respective folds by giving each other’s customers access to discounts previously only available to their respective members. JD.com’s foray into luxury goods also hits Alibaba in a soft spot, as higher-end items (even if sometimes counterfeit) have been a hot product category. JD is specifically targeting underserved mid-tier locales with its new e-commerce website.
So why is JD.com stock on the verge of a meltdown? Because sometimes, things just happen that don’t jibe with the fundamentals of a stock. This is one of those times. Resist the budding downtrend at your own peril.
The daily chart of JD stock below isn’t a tough one to interpret and is rife with red flags. Two stand out above all the rest, though.
First and foremost, the JD stock price is close to completing a head and shoulders pattern, if it’s not been completed already. The most plausible neckline at $37.76 (yellow, dashed) has already been broken as a floor. Though just for good measure, we’ll also assume the June low of $36.77 (orange, dashed) is a key line in the sand. Either way, the support is breaking down with the lower of those two floors less than a dollar away from the current JD stock price.
Second, at the same time the bearish head and shoulders setup is nearing completion, JD stock is about to move under the all-important 200-day moving average line (green). Considered the grandmother of all moving average lines, a tumble under this line is a clue that the tide has turned in the wrong direction for JD.com stock in a big way.
Seeing both red flags together at the same time we’re seeing above-average bearish volume suggests the odds favor the bears here.
Bottom Line for JD Stock
Don’t read too much into the premise. There are never any guarantees in trading. Though most of the key technical signs point to problems ahead, there’s still a way for the stock to dig its way out of trouble before things migrate from bad to worse.
From an odds-making perspective though, the picture of the foreseeable future looks grim. One more blow to the stock that drives it under $36.77 could be just enough to convince traders that a bounce isn’t forthcoming. Once the last of the stock’s supporters start to make their way out of the stock, with nothing left to use as a technical crutch, the brewing pullback could materialize in a hurry.
The good news? A big pullback is a buying opportunity. The JD.com story is still a compelling one with lots of growth in store.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.
