JD.com Beats Estimate and Shares Stay Shy of Record - Here's How to Trade

JD.com beat Wall Street's expectations. Given coronavirus-related volatility, my call is to buy weakness to its monthly value level for March at $36.90 versus Friday’s low of $36.82.
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JD.com  (JD) - Get Report on Monday reported its sixth consecutive earnings beat, and the stock is rallying toward its 52-week intraday high of $43.09, set Feb. 19. 

The stock began the day stabilizing around its pivot for this week at $41.14. 

My call, given coronavirus-related volatility, is to buy weakness in the stock to its monthly value level for March at $36.90 versus Friday’s low of $36.82.

JD.com is the Beijing e-commerce giant and a competitor to Alibaba  (BABA) - Get Report. The company expects to grow Q1 net revenue by at least 10% year over year, but this guidance is subject to the uncertainties related to the coronavirus.

Shares of JD.com closed last week at $38.51, up 9.3% year to date and in bull-market territory, having doubled from their Dec. 24, 2018, low of $19.26. 

At the close the stock was also in correction territory, 11% below its 52-week high.

Longer term, the stock is consolidating a bear-market decline of 62% from its all-time intraday high of $50.68, set during the week of Feb. 2, 2018, to its November 2018 low of $19.21.

The Daily Chart for JD.com

Daily Chart For JD.com

Daily Chart For JD.com

Courtesy of Refinitiv XENITH

The daily chart for JD.com shows that the stock has been above a golden cross since April 11. That's when the 50-day simple moving average moved above the 200-day SMA. Such a move indicates that higher prices would follow. 

When a golden cross is confirmed, the trading strategy is to buy weakness to its 200-day SMA. This opportunity occurred many times between May 9 and Oct. 8, as shown on the green line on the chart.

The close of $35.23 on Dec. 31 was an important input to my proprietary analytics. Its semiannual, annual and quarterly value levels are $31.72, $24.33 and $22.04, respectively.

The close of $38.51 on Feb. 28 was an input to my analytics. Its monthly value level for March is $36.90 with its pivot for this week at $41.14.

The Weekly Chart for JD.com

Weekly Chart For JD.com

Weekly Chart For JD.com

Courtesy of Refinitiv XENITH

The weekly chart for JD.com is neutral, with the stock above its five-week modified moving average of $39.50. 

The stock is well above its 200-week simple moving average, or reversion to the mean, at $32.41. The stock has been above this moving average since the week of Dec. 6, when the average was $31.99.

The 12x3x3 weekly slow stochastic reading is projected to end this week slipping to 78.22 from 80.29 on Feb. 28. 

When the stock set its low in November 2018, this reading was 7.73, below the 10 threshold making the stock technically too cheap to ignore.

Trading Strategy: Buy weakness to the monthly value level at $36.90 and reduce holdings on a weekly close below its five-week modified moving average at $39.50.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Monthly levels for March were established based on the Feb. 28 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the past 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.