Whether it is the positive sentiment about the U.S. and China deal drawing near or the company’s fundamentals, JD.com (NASDAQ:JD) has soared since the lows of 2018 and JD stock is up over 1% again this morning.
Source: Daniel Cukier via Flickr
Last December was brutal to stocks, especially the ones that are related to China. But unlike the rest of the stock market, JD set its lows in November. Then, when the S&P 500 bottomed on Christmas, JD set its double-bottom, which then became strong footing for this extended rally. Since then, JD.com stock is up more than 50%.
Last week management delivered earnings and they beat the expectations. So investors rewarded them with another wave of buying. JD stock is not a cheap stock, so Wall Street gives it a lot of leeway, especially when the retail sector has recently come under fire. But JD is not the typical retail stock and it sits directly in the line of fire of the tariff war. So it is now riding the positive momentum on that front.
Regardless if it was sentiment, fundamentals or just the abatement of the CEO legal trouble headlines, JD now is a winning stock for those who are long it. They say don’t fight the tape, so I wouldn’t suggest shorting this healthy rally. For most, it has come too far too fast, so that makes it too dangerous to short and perhaps too scary to chase.
So is it too late to buy it here? For the short term, the easy money is made. JD.com is in a mega rally since the December lows. While there is room for more upside, short-term traders need to be smart about it.
From here, the bulls will need the help of the general stock market rally to help them extend the gains. This is not the same as saying to short the stock. This is a judgment of the technical chart setup. It has already reached several milestones off bullish patterns, which have already happened.
Since the double bottom, JD stock has had several breakouts most notably from the necklines at $23.40 and $25.90 per share. Now as it approaches the $30 level, the lines get a little harder to read.
Bottom Line on JD Stock
The start of last September was a precipitous trap door and left an ominous collection of candles behind it. So the actual next trigger line is not as easy to read as the prior ones we’ve had so far this year.
Long-term investors need not worry about these minute entry points as their thesis is long term so they can overlook the low time frame ticks. But from the short term perspective, those who trade JD have to trust in that the headline stream will continue to be positive on the tariff front and that the Chinese stock markets will also continue to rally. This is to provide JD with enough lift so it too can overcome the $32 per share cliff from which they collapsed at the end of last August.
Momentum stocks like JD.com stock pose a problem for most investors because of the speed with which they rally and fall. In this case, the stock looks overextended and due for a pullback. That alone is not a reason for it to correct, but it is definitely a reason to be cautious. Between $30 and $31 there are open gaps to fill, but they make for a tough slog for bulls. Waiting out those candles makes sense, especially for new entrants. These are spots where those who traded JD stock long from the bottom look to trim profits.
When a stock recovers from a bottom and reaches its prior “accident spots”, both bulls and bears will want to fight over it again thereby creating congestion that could stall the rally. For now, those who are long JD stock can stay long, but those looking for a new entry position should probably wait out a few more candles. Otherwise, there are round number stop loss levels at $28, $27 and $26 per share below.
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. You can follow him as @racernic on Twitter and Stocktwits.
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