Watching These Influential Baozun Stock Indicators

BZUN Stock
Credits:iStock.com/diegograndi

BZUN Stock: Bullish Trend Acceleration

I am focusing on Baozun Inc (ADR) (NASDAQ:BZUN) stock once again because it is up by a considerable amount since my June 9 report on this company, which was titled “Baozun Stock Is Perfectly Aligned for Further Gains.” This is my version of a victory lap. I’m quite proud, because BZUN stock has gone up 47% in the span of six-and-a-half weeks.

This raises the question: “How long will the rally continue before a correction ensues?”

My ability to correctly suggest whether a stock is set to appreciate or depreciate is directly related to the method of investment analysis I employ, which is technical analysis. This method of investment analysis is based on using a company’s stock chart to produce a bullish or bearish bias, which can then be applied to an appropriate investment strategy.

In my previous publication about BZUN stock, when it was trading at $23.23, I explained that a number of technical indicators were in bullish alignment, which suggested that the stock price was set to appreciate.

The following BZUN stock chart highlights three indications. They are still in bullish alignment, which continues to suggest that the path of least resistance is toward higher stock prices.

BZUN stock prices

Chart courtesy of StockCharts.com

There are three distinct indications on the above stock chart that suggested—and which continue to suggest—that higher BZUN stock prices are likely.

The first indication is coming from the price action, and it specifically shows when Baozun stock was able to break above—and sustain its footing above—the previous all-time high that was set in June 2015.

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The topic of stock prices breaking above previous all-time highs has been the focus of a number of my publications because, once an investment is able to accomplish this feat, the ensuing rally usually hits heights that are beyond all expectations. These price rallies that produce such results are fueled by short-covering and momentum traders chasing performance.

The second indication is coming from the relative strength indicator (RSI), which is an oscillator that measures overbought and oversold conditions. When the RSI indicator is above 70, it is deemed overbought. While this indicator was embedded above the 70 level, many of the gains that Baozun stock experienced occurred under such conditions, making RSI a very timely indicator.

As a result, as long as this indicator remains embedded above 70, the accelerated trend toward higher prices is going to continue. A signal will be generated once this indicator falls back below 70, indicating that the bullish trend is set to take a breather, suggesting that a pullback is in order.

The third indication is coming from the moving average convergence/divergence (MACD) indicator, which is used to distinguish whether bullish or bearish momentum is influencing the stock price. The crossing of the signal line distinguishes between these two metrics.

A bullish MACD cross suggests that bullish momentum is influencing the stock price and, therefore, the stock tends to appreciate as it creates a path of least resistance that is geared toward higher stock prices. A bearish MACD cross is the exact opposite of a bullish cross, suggesting that lower prices are set to prevail.

In May of this year, BZUN stock began trading above the previous all-time high on a sustained basis, which coincided with an embedded RSI and a bullish MACD cross. These three coinciding indications fueled the current advance, which has seen the share price more than double since the beginning of May.

These were not the only indications which suggested that a bullish advance was underway, but I have chosen to focus on them because, if RSI falls below 70, or a bearish MACD cross is generated, it would suggest that this accelerated advance to the upside has run its course, and that a correction is set to ensue.

Corrections are needed in every bullish market advance because they serve to alleviate any overbought conditions that have been created, which then sets the stage for the next market advance.

Bottom Line on Baozun

Baozun stock has appreciated by 47.01% since my last publication about this company, and this exceptional gain was suggested by a number of technical indicators. These indicators remain in bullish alignment, supporting a continued advance. I chose to focus on these indicators specifically because they will confirm when a BZUN stock price correction is in the works.