JD.com (JD) Stock Showing a Rising Wedge Pattern

JD.com (JD) could quickly erase all of its gains since early September.
By Bruce Kamich ,

NEW YORK (TheStreet) -- A rising wedge pattern is one of the great mysteries of charting. The chart is going up, but the pattern is inherently weak and the whole pattern can end badly if the chart breaks out to the downside. Unlike triangles that have one horizontal trend line and do not reach their apex, the two trend lines that outline the wedge are rising and converging to an apex.

Starting from a low in early September, chart above, this chart of JD.com (JD) - Get Report rises with narrowing swings. Ideally, the volume of shares traded during the wedge dries up, but that is not the case in this example.

In this chart of JD, I want to focus on the relatively flat On-Balance-Volume (OBV) line, despite the heavier volume the past four months. A flat OBV line is not the same as light volume, but the result may be the same. In the lower panel, we can see a bearish divergence with prices rising and the momentum study showing lower highs during October and November. If JD breaks to the downside, it could quickly erase all the gains since early September. Be careful out there.

TheStreet Ratings team rates JD.COM INC -ADR as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

We rate JD.COM INC -ADR (JD) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and poor profit margins.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • JD's revenue growth has slightly outpaced the industry average of 37.9%. Since the same quarter one year prior, revenues rose by 46.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • JD's debt-to-equity ratio is very low at 0.09 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • Compared to other companies in the Internet & Catalog Retail industry and the overall market, JD.COM INC -ADR's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for JD.COM INC -ADR is currently extremely low, coming in at 7.44%. Regardless of JD's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -1.20% trails the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet & Catalog Retail industry. The net income has significantly decreased by 211.9% when compared to the same quarter one year ago, falling from -$26.78 million to -$83.52 million.
  • You can view the full analysis from the report here: JD

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

Loading ...