JD Stock: Wonderfully Bullish
I love my job on many fronts, but nothing feels as rewarding as watching my analysis come to fruition. On October 20, 2016, I published a report on JD.Com Inc(ADR) (NASDAQ:JD) stock titled “JD.Com Inc(ADR): JD Stock Is on the Verge of a Monster Run.”
At the time of that publication, shares were trading at $26.65. Five months later, this same investment is now trading at $31.91, representing a 19.75% return. I am focusing on JD.Com stock once again because I believe that higher stock prices are still on the horizon.
My beliefs are based on technical analysis, which is my preferred method of developing an investment view. This method is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. As a result, my analysis begins and ends using the price chart, and the only metrics that change are the scales and indicators that are employed.
The following price pattern was the subject of my earlier publication, and it served to suggest that a monster run was approaching.
Chart courtesy of StockCharts.com
The JD stock chart illustrates that a large descending triangle was in development for nearly two years. A descending triangle contains two converging trend lines. The upper trend line acts as a level of price resistance, and the lower trend line acts as a level of price support.
These two converging trend lines contain the share price as the pattern progresses, and momentum is built inside the pattern as a result. This momentum is finally released when the price exits the pattern in either an upward or downward direction.
Triangle patterns often have five points of contact before the pattern breaks in either an upward or downward direction. As the fifth point was in development in the summer of 2016, a failed breakdown occurred. Failed signals should never be ignored because these signals are particularly powerful, and there is good reason for this. Failed signals require traders who base their investment decisions on these signals to unwind their positions as quickly as possible, and this creates a stampede towards the exit.
This is what traders refer to as a “bear trap.” Bear traps are instrumental in indicating a trend reversal, and it’s not a coincidence that JD stock quickly rallied to test the resistance level outlined by the ascending triangle.
In early 2017, a bullish breakout occurred, and this event implied that the triangle price pattern was complete, and higher stock prices were now likely to follow. The high at $38.00, where the triangle price pattern first began to develop, becomes the initial price objective to the resolution of this technical price pattern.
The following JD.com stock chart illustrates the bullish price action that followed this breakout.
Chart courtesy of StockCharts.com
In early October 2016, a golden cross was generated. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue in the above chart) crosses above a slower 200-day moving average (highlighted in red). This indicator is used to confirm that a bull market is in development. This indicator was generated prior to the breakout, and it suggested that the resolution to the price pattern was going to be in an upward direction.
It is not uncommon for the share price to accelerate after a golden cross is generated, and this is where an ascending channel quickly developed. This ascending channel is created by using two parallel upward-sloping trend lines that act as lower support and upper resistance. As long as JD stock remains within the confines of this channel, the bullish trend is assumed intact. If JD.Com stock ever closed below support outlined by the ascending channel, I can only assume that a larger correction was set to ensue.
The price action within the ascending channel has been nothing short of spectacular. This spectacular trend has propelled the share price higher and the price action has been constructive.
Constructive price action consists of impulse waves that serve to advance a price, and consolidation waves that serve to unwind any overbought conditions and set up the next advancing impulse wave. This alternating wave structure allows a trend to sustain itself, and the ascending channel is littered with such price action.
JD.Com stock is currently developing a consolidation wave, and a break above resistance would suggest that a new impulse wave was set to develop. The resistance level outlined by the ascending channel would be the next logical price objective.
Bottom Line on JD.Com Stock
I am bullish on JD.Com stock because there are numerous indications on the JD stock chart that support this view. I will remain bullish on this investment until there are indications on the price chart that suggest another view is warranted.