Fireworks for Chinese e-commerce firm
11/14/17

Alibaba (BABA) may still rule the Chinese e-commerce roost in terms of stock price and market cap, but this week kicked off with evidence that another player in the space has something to crow about.

Despite trading less than a quarter of BABA’s share price, JD.com (JD) actually outpaced BABA for much of 2017 before retreating some 25% from its August high of $48.99, while BABA kept grinding higher. A bounce off its late-October low brought the stock back above $40 by November 8—just three days before yesterday’s Q3 earnings release.

JD.com (JDD) and Alibaba (BABA), 11/30/16 – 11/14/17

Source: OptionsHouse

It was good news across the board. The company beat on revenue, which grew more than 38% year-over-year, and actual earnings of $0.23/share were more than double the estimated $0.11/share.1 Traders responded accordingly, gapping the stock higher on the open and taking it up as much as 7% on the day before prices cooled a bit.

JD has been no stranger to such big up days; the question is whether they mean anything. In roughly three-and-a-half years of trading, the stock has notched 53 other days that traded above the previous day’s high and at least 5% above the previous day’s close. The catch is that more often than not, the stock typically went sideways to lower after such days.

JD.com (JDD), 6/8/2017 – 11/9/17

Source: OptionsHouse

But two other factors could play a role in determining whether Monday’s move has the potential for some short-term bullish follow-through. The first is the stock’s up gap (when the current day’s low is above the previous day’s high). These events have, on average, been followed by three days of upside price action in JD—and then by declining prices over the next couple of days. (June 19 and May 8 were the two most recent up-gap days.) The price action after days that have gapped up and traded at least 5% higher intraday show a similar pattern—three days of bullish price action, followed by a two-day downturn.

The second factor is whether the stock closes at least 5% higher on days it trades at least 5% higher intraday. A little more than half the time it doesn’t, but when it does, the odds favor at least some immediate upside price action.

In all these scenarios, the first day after the big up day is usually the most iffy (especially when the stock closes less than 5% higher), and in this case a test of the gap zone is certainly possible.

After that, it’s a matter of whether the company’s financials and fundamentals can convince investors that JD can hold its own against Alibaba, and that the stock can mount a challenge to its September and August highs.

 

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