JD.com (NASDAQ:JD) had an incredible rally that started in April of 2017. The stock then rose 60% coming into an inflection point. It is currently tracing out a similar pattern so it is possible that JD stock will party it’s 2017 starting in the next few weeks, So this is an opportunity that is worth investigating.
In early June, I shared a note to stay long JD stock as it showed promise, and that paid off well. The stock rallied almost 20% thereafter. So from a trading perspective, those long the stock can set appropriate stop loss levels to safeguard these profits and still continue to participate in this rally.
Fundamentally speaking, JD stock is somewhat confusing to evaluate. On the one hand, JD has a 200 trailing P/E ratio. But on the other hand it sells at a low multiple to sales. So the arguments are valid from both sides of the fence. Bulls and critics alike can offer viable points in their debates.
So the tiebreaker here is the technical chart aspect.
Important Levels for JD.com Stock
It is worthy to note that last year about this time JD stock also showed great promise after it had rallied 30% into June. But that party ended with a disastrous 55% correction. But this time it could be different because this setup has better relativity.
Currently JD stock is much lower than its all-time high so it has less froth. This level is also close to the 50% retracement of the harsh correction from last year. So from that perspective the setup that we have now comes from a more modest one than last year’s, which makes it less vulnerable to big debacles.
JD.com stock double bottomed on Christmas Eve and embarked on a 60% rally from the lows. Since then, it has been setting higher-lows and has been knocking on a ceiling for over two months. This builds energy into the chart which often has to resolve itself one way or another. So there is a move coming but the breakout can be in either direction.
JD is up 50% year-to-date which is more than twice the S&P 500. This is also seven times better than the iShares China Large-Cap ETF (NYSEARCA:FXI). So the bulls have the momentum, and odds are it will be another leg higher and that could mean $40 per share or more. If the bulls can close above $32, they can invite more momentum buyers to really heat this rally up. There will be resistance is along the way around $36 per share.
That level has been in contention in a major way since 2015. Back then it served as a impenetrable roof but after a two year effort, the bulls finally broke out from it and set new all-time highs over $50 per share. Alas, that didn’t last too long because of last year’s correction.
During that debacle, $36 per share also served as a JD’s breaking point for a ledge that resulted into the Christmas crash.
So here is JD.com back to an opportunity that could bring the stock back to this pivotal level. And with a little luck and a conducive overall stock market price action, the bulls can prevail once more.
The Bottom Line for JD Stock
In the next few weeks, the fight should come back to that level and it could result in a another great rally. Either case, owning JD stock at now has more upside opportunity than downside risk.
It is important to note that the trade war between the U.S. and China is still ongoing. And even though the politicians sound a little nicer these days, they are no closer to a deal than before. JD stock is susceptible to these headlines.
So for what it’s worth, there might be still some hopium premium built into the stock. However I bet it’s not significant because this trade war has been in the news for over a year and Wall Street has had time digest it. In these cases, even though it’s not fully priced in, traders have already given risk its allocations for either side of the outcomes of the struggle between the two nations.
So if they drag their feet finding a deal, it’s not going to affect the stock negatively too much. Conversely, if they get a deal done, JD.com stock will rally hard in relief and enough to start the potential spike that is brewing in the chart today.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room free here.