JD Stock: Completes a Bullish Breakout
I was fortunate to stumble upon JD.Com Inc. (ADR) (NASDAQ:JD) stock on August 16, 2016, when this investment was trading at $25.05. On that day, I published a report titled “JD.com Inc (ADR): This Internet Stock Has Huge Upside Potential,” where I outlined that developments on the JD.Com stock chart suggested that a stock price advance was in order. This was the beginning of a strong advance, and since that initial publication, JD stock has appreciated to the tune of 82.24%.
The focus of this publication is to provide an update, because new developments have just been generated, suggesting that the bullish advance towards higher stock prices is set to continue. Depending on where you stand, this is very exciting news.
Before I delve into the newly generated indications, I want to focus on the indications that originally generated my bullish view on this investment. The following JD.Com stock chart illustrates the original indications that served to suggest that a bull market was in development.
The JD stock chart illustrates a technical price pattern known as a “descending triangle.” These price patterns are identified using two converging trend lines that define respective levels of price support and price resistance. These patterns often requires five points of contact to be deemed a triangle.
Chart courtesy of StockCharts.com
These technical price patterns are known for their explosive breakouts. These explosive breakouts are a result of momentum that is built and stored within the pattern as it oscillates between levels of support and resistance. The stored momentum is finally released when the stock price breaks above resistance or below support, and an explosive result usually follows.
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My bullish view on this investment was generated in August of last year after the pattern exhibited a false breakdown. A false breakdown is when the share price falls below support, but then quickly finds its footing and trades back inside the price pattern. Failed indications are just as powerful, if not more powerful, than regular indications, and they are therefore never to be ignored.
JD.com stock’s inability to break down could only be interpreted as a bullish indication, because if a stock cannot trade lower when it falls below support, then the path of least resistance must be towards higher stock prices. This failed breakdown suggested that resistance outlined by the descending triangle was set to be tested, and possibly broken.
In January 2017, JD stock broke out above resistance, completing the descending triangle, and the explosive move that was expected began its development.
The the following JD.com stock chart illustrates the bullish price action that followed.
Chart courtesy of StockCharts.com
This JD stock chart illustrates the explosive move towards higher prices that resulted in the completion of the descending triangle.
This explosive move to the upside was initiated shortly after the 50-day moving average, which is highlighted in blue, crossed above the 200-day moving average, which is highlighted in red. This crossing of the moving averages created a “golden cross,” which is a bullish indication that is used to suggest that a new bull market is in development. This indicator effectively captures the transition from a bearish trend to a bullish one.
Shortly after the golden cross was generated, JD stock began to appreciate. This appreciation in the stock price was characterized by constructive price action.
Constructive price action consists of impulse waves, which are highlighted in green, and consolidation waves, which are highlighted in purple. Impulse waves serve to define the period in a bullish trend when the stock price stages a bullish advance. Consolidation waves serve to define the period in a bullish trend where a correction ensues that serves to unwind overbought conditions that were created during the previous impulse wave.
The unwinding of an overbought condition creates the necessary environment for a new impulse wave to develop. These waves essentially feed off each other, and therefore, in an alternating structure, they are instrumental in creating a sustainable trend.
The current bullish trend is now nine months in development, and there is little to suggest that this bullish run towards higher stock prices is set to end anytime soon. The JD stock price has just exited a consolidation wave in an upward direction. This price breakout suggests that a new impulse wave is now in development, and therefore, higher stock prices are likely to follow. This new high in the stock price is also a new all-time high, which implies much higher stock prices, because there is no overhead price resistance to contain JD.Com stock.
Bottom Line on JD Stock
I am bullish on JD.Com stock because the bullish implications suggested by the descending triangle are still intact, and the price action on the stock chart continues to suggest that higher JD stock prices are on the horizon. If, and when these indications change, I will change my view accordingly.