Pinduoduo Inc. (PDD) might be the strongest big-cap stock you've never heard of, lifting more than 30% in the past month to an all-time high in the $40s. The China e-commerce upstart boasts a $48 billion market cap, 349 million float, and average volume in excess of 7 million shares per day. Amazingly, it's still poorly covered by Wall Street and flying under the radar of many professional market watchers.

The Shanghai-based company, formerly known as Walnut Street Group Holding Limited, listed on the U.S. exchanges in July 2018 despite risk from the escalating trade war and has outperformed the vast majority of China plays since that time. A wildly successful mobile platform that integrates shopping and social media has caught the attention of investors while taking market share away from larger rivals Alibaba Group Holding Limited (BABA) and JD.com, Inc. (JD).

Momentum players have been piling into Pinduoduo stock since it broke out above resistance in the upper $20s in September. Improved sentiment between China and the United States has underpinned buying pressure, opening the door to steady upside that could persist well into 2020. Better yet, Pinduoduo isn't particularly overbought despite recent gains, lowering risk of a sudden reversal. This is especially true because the stock still hasn't been added to algo-driven index or sector funds.

The company is building capital through secondary offerings and debt, highlighted by September's $875 million convertible senior notes offering. This won't be an issue until its astronomical growth rate wanes or shareholders grow nervous about negative earnings per share (EPS) due to heavy investment in expanding operations. Even so, analysts covering the stock expect profitability to improve as the platform hits the mainstream and competes more directly with Alibaba and JD.

PDD Daily Chart (2018 – 2019)

Chart showing the share price performance of Pinduoduo Inc. (PDD)
TradingView.com

The company entered the U.S. exchanges at $26.50 in July 2018 and sold off, dropping into the upper teens in late August. It turned the corner into September, lifting just above the high print of the first session and stalling out, carving a small-scale topping pattern that established resistance in the upper $20s and low $30s. The stock completed a round trip into the prior low in October and broke down, posting an all-time low at $16.53 on Nov. 14.

Cautious buyers returned into year end, lifting price in multiple waves that completed a round trip into the September peak in January 2019. The stock spent the next two months attempting to break out, but the effort failed, setting the stage for renewed downside that settled at the .618 Fibonacci rally retracement level in the upper teens in June. A successful test at that level one month later gave way to a steady uptick, followed by a breakout after August earnings.

The sequence of highs and lows since November 2018 suggests that the uptrend is just getting underway, with price action potentially carving an Elliott five-wave rally set, The summer 2019 advance could mark the first wave of a larger-scale third wave that might carry to much higher prices in the coming months. If so, the uptrend may soon hit the next short-term target in the upper $40s, which would print a move equal in length to the July-into-September impulse.

The Oct. 24 wide-range rally bar between $35 and $40 should provide strong support on the downside because it's narrowly aligned with the breakout above the September high. The 50-day exponential moving average (EMA) will be lifting into this convergence zone in the next few weeks, adding an additional support layer. The stock has traded above the moving average since July, so a breakdown will set off sell signals that presage a fill of the August gap.

The Bottom Line

China e-commerce upstart Pinduoduo has emerged as a momentum leader in the fourth quarter and could add substantially to already impressive gains in the coming months.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.