China’s second-biggest e-commerce middleman JD.com (NASDAQ:JD) is doing everything it’s supposed to be doing, and given the macro headwind stemming from the tariff-driven impasse, is doing it reasonably well. It’s difficult not to notice, however, that JD stock itself has worked its way into something of a rut. It’s not losing ground, but it’s clearly not gaining ground either.
The good news is, the chart has been kind enough to draw some clear lines in the sand that will mark when and where shares finally break out, or break down. The bad news is, a breakdown looks just as likely as a breakout.
JD Stock Has Middle Child Syndrome
Not unlike the often-alleged lack of attention the second of three children may lament, China’s second-biggest e-commerce name can be lost in the shuffle. Clearly it doesn’t garner as much attention as giant Alibaba (NYSE:BABA), but it has also not fascinated investors as much as fast-growing newcomer Pinduoduo (NASDAQ:PDD) has.
The middle child syndrome may be working to the company’s advantage, however. It was forced by the sheer presence of Alibaba to become something different. So, it became a logistics expert and service provider, offering retailing solutions to thousands of China’s small retailers and shops that would otherwise struggle to stand up to Alibaba … a strategic shift that in retrospect seems brilliant.
Click to EnlargeThe results speak for themselves. Last quarter’s top line was up 23% year-over-year, driving operating margins to their highest readings in a couple of years, and a couple of years ago, China’s consumer-driven economy was hitting something of a critical mass. Analysts expect more of the same progress moving forward.
The holdup — and hangup — of course, is the trade war being fought with tit-for-tat tariffs between China and its chief trade partner, the United States. China seems to be surviving it. But, it has only been within the past few weeks the full impact of the trade war has become evident. The recent past may not accurately reflect the foreseeable future though.
Right or wrong, however, such an assumption will be driven by the underlying stock chart, rather than force a chart to take a particular shape. Welcome to the market.
The JD Stock Chart Is the Key
JD stock may not have made any meaningfully higher highs since March, but that’s not to say the high and low points of that volatility hasn’t been meaningful. Three specific nuances stand out, leading investors toward reasonable assumptions about what comes next.
Click to EnlargeOne of those nuances is the rather clear technical ceiling that’s developed right around $32.17. Marked as a yellow dashed line on the chart of JD stock below, shares have repeatedly tested that resistance since March’s peak. That persistence is telling in and of itself.
Also noteworthy is where it stumbled since May has been stopped and reversed. Although not with laser-like precision, the 200-day moving average line has held up as support, buoying JD.com shares when they were most desperate for help. That’s a critical technical indicator.
Perhaps the most encouraging detail of this chart, however, is also the easiest one to miss in the midst of all the noise. Although not a textbook quality example of the pattern, JD shares have hammered out a pretty good cup-and-handle pattern since August of last year, suggesting a breakout thrust is brewing.
The key? Getting up and over the cup’s brim line around $32.17.
Bottom Line for JD Stock
The scenario is simple enough. What’s complex is the backdrop. The trade war being fought between the United States and China hasn’t been a horrifying problem yet, but is finally becoming one. Investors are right to be concerned, although it’s not too late to take a step away from that cliff’s edge. Next month’s planned meeting between President Donald Trump and President Xi Jinping could lead to that exact result. Or, maybe it won’t.
Whatever the case, the whole thing leaves traders on hold in the meantime. If you watch closely though, the chart is more likely to lead any shifts in the tone and timbre of the rhetoric rather than the other way around.
And no, it’s not unusual for the tail to wag the dog, so to speak. It’s just that not many people in this business care to concede the market’s behavior can be so predictably irrational.