Baozun Stock Is Perfectly Aligned for Further Gains
BZUN Stock: Set Up to Accelerate
Many Chinese Internet companies have sprouted wings and taken flight in recent months, and Baozun Inc (ADR) (NASDAQ:BZUN) stock is no exception. Since May 1, BZUN stock is up 52%, and there are indications suggesting that the flight towards higher Baozun stock prices has only begun.
These indications mirror some of the best-performing investments this year. Shopify Inc (NYSE:SHOP) stock had similar indications in December of last year, and that investment is up 125.5% this year. These indications are why I am extremely optimistic about the prospects of Baozun Inc going forward.
This extremely optimistic view on this investment was created by analyzing the indications that have occurred on the BZUN stock chart. This method of analysis is known as technical analysis, and it is based on the notion that historical price and volume data points can be used to project the future direction of price. This method of analysis has served me well, and my readers can attest to the great calls I have been able to make using this method.
The following Baozun stock chart illustrates the price action since inception that is serving to create my bullish view on this investment.
Chart courtesy of StockCharts.com
My experiences have taught me that once an investment breaks above a previous all-time high, it is wise to pay close attention. This is especially true for companies that created this high shortly after their shares began trading on the open market.
In May 2015, in the second week of trading on the Nasdaq exchange, Baozun shares peaked at $14.77. After forging this high, a very large correction ensued and BZUN stock didn’t find its footing until it hit $4.00, losing 72.92% of its value from peak to trough. A slow grind higher followed, and it wasn’t until August 2016, 15 months later, that Baozun shares were back, testing that all-time high.
It took a great deal of buying pressure to reach this level, and the break above the previous all-time high was not clean. As a result, this investment spent the next eight months trading within a range around this high. This range-bound trading was necessary in order to unwind overbought conditions that were created. These overbought conditions are measured using the relative strength indicator (RSI) located in the upper panel of the chart above.
RSI is an oscillator that measures when an investment is overbought or oversold. A reading above 70 is overbought, and a reading below 30 is oversold. The RSI has a tendency to remain either overbought or oversold, and a large proportion of the gains and losses occur when this indication is embedded. Once this oscillator breaks back below or above an extreme level, it acts as an indication that the current advance or decline has concluded.
For example, in July 2016, the RSI crossed above 70, suggesting this investment was overbought. This overbought signal remained embedded until late October, where it finally crossed back below 70. Baozun stock appreciated from $9.00 to $15.00 during that period, supporting the notion that much of the gains were made while the RSI was in overbought territory. When the oscillator crossed back below 70, it was an indication to suggest that the current advance was complete.
The indication from the oscillator that this advance was complete coincided with a bearish MACD cross. MACD is an acronym for moving average convergence/divergence, and this indicator is used to distinguish between bullish and bearish momentum. The bearish MACD cross served to suggest that bearish momentum was pressuring BZUN’s share price. This indication reinforced the suggestion made by the RSI, that the advance towards higher prices had concluded. The range-bound trading action that occurred around the previous all-time high was necessary to unwind these bearish indications.
It was not a sheer coincidence that BZUN stock suddenly began to appreciate in May of this year. This resumption towards higher prices was first implied by a bullish MACD cross in April. This indication served to suggest that bullish momentum was once again governing this investment, paving the path towards higher stock prices. This resumption towards higher prices is also being reinforced by an embedded overbought RSI indication.
All the indications that supported the previous advance are once again aligned, but this time Baozun stock has successfully cleared the previous all-time high. This confluence of bullish indications serves to suggest that much higher stock prices are ahead. It would be wise to carry a bullish view on this investment because any surprises should be to the upside.
Bottom Line on Baozun Stock
Baozun stock is one of many Chinese Internet stocks that are now taking flight. May was an exceptional month, and the indications on the BZUN stock chart continue to suggest that this performance and higher prices are still likely to follow.