A Nice Rounded Bottom

A Nice Rounded Bottom

February 24, 2019 Off By Chuck

After being crushed by more than 60% (peak to trough) over the past year, Chinese retail giant, JD.com. JD, looks worthy of your investment dollar consideration. Not being a fan of v-shaped bottoms, those that base sideways or (preferably) in a saucer-shaped, rounded bottom pattern, have the potential of being much longer-term winners and as such, are more desirable. As you can see in the one-year daily chart of JD below, that is exactly what has taken shape. It’s not just the shape of the set-up but also the volume confirmation (bottom pane) that is occurring. On the way down, the biggest volume bars were red telling us of institutional distribution (follow the money). Eventually, the red bars begin to get smaller and then replaced by big green ones, indicative of institutional accumulation (follow the money).  Protracted moves in either direction must be accompanied by institutional activity otherwise their longevity becomes suspect.

In addition to price and volume, RSI momentum is above 50 and rising. While its 200-day moving average is still declining, it is flattening. Price is currently above a rising 50-day moving average, all the hallmarks of what you need to see in an early trend reversal

A confirmed break of the green horizontal saucer neckline points to a target at T1 some 25% above. A resurgence in the Chinese economy (brought on by an end to the trade-war perhaps?) could push the stock back up to last year’s highs, offering the potential for a 90% winner. With investment capital recently flowing into emerging markets, including China, a continuation or worsening of US-China relations would likely turn this potentially big winner into something quite the opposite. Invest accordingly.