JD.com, Inc. (JD), often considered the Amazon.com, Inc. (AMZN) of China, is showing bullish patterns in its price chart. China's leading online e-commerce platform got hammered in 2018. Shares plunged over 60%, but 2019 has been a different story. Shares are up 50% thus far.
Over the past seven months, prices have been range bound. This is when a stock is stuck in a sideways price pattern. JD.com's price pattern happens to be my favorite stock market pattern – an ascending triangle. This pattern is easy to identify because it makes the shape of a triangle, with a consistent resistance level and rising support level.
The reason this price pattern is my favorite is because of all the information it tells us. The most important of this information is the price target. Once we get a breakout either above the resistance level or below the support level, we can expect the stock to move the same amount as the height of the pattern.
In this case, it's $13 a share. With the stock around $30, the ascending triangle is calling for another 40% rally to the upside, or possibly a plunge by 40% to the downside.
This time, I'm looking for the stock to breakout to the upside. Here's why. In JD.com's price chart is another tool that is showing extreme importance for the stock – its 200-day simple moving average. Take a look:
The orange line on the chart is the 200-day simple moving average. This is a critical level to watch in every stock. Many investors use it to define the trend based on whether the stock is above or below this average. Right now, JD.com is above the 200-day simple moving average.
However, what I want to point out is the three recent dips in the stocks price that bottomed out right at the 200-day simple moving average – the yellow arrows. These dips are what is forming the new uptrend and created the ascending triangle pattern.
The fact this average is acting as support for the stock gives me an indication that the stock is starting to create a new uptrend. And if it doesn’t, we have the two key levels to watch – the green support level from the ascending triangle and the 200-day moving average. Once one of those levels is broken, you can expect a major move to the downside. Until then, I’ll remain bullish on the stock.
The Bottom Line
JD.com stock is setting up to make a major move. Between its ascending triangle pattern and the key 200-day simple moving average, we have the key levels to watch and to take action on a breakout. Based on the ascending triangle, we are looking at a major 40% move in the coming months.