Signal Says E-Commerce Stock Could Climb Higher

The shares of China-based e-commerce stock JD.Com (JD) are down 0.9% at $76.26 at last check, continuing a steady trail downward from its Nov. 6 all-time high of $92.77. However, the equity’s latest pullback has it near a historically bullish trendline, which could serve to push JD higher in the coming weeks.

More specifically, JD.Com stock just came within one standard deviation of its 100-day moving average, after spending a vast majority of 2020 above this trendline. According to data from Schaeffer’s Senior Quantitative Analyst Rocky White, four similar signals have occurred during the past three years. One month after each signal, JD enjoyed an average return of 13.7%, three out of the four times. From its current perch, a move of similar magnitude would put the stock up past $86.

What’s more implied volatilities on the equity are at relatively low levels. JD’s Schaeffer’s Volatility Index (SVI) of 41% sits in the 23rd percentile of its annual range. In other words, the security is pricing in cheaper options than usual in relation to the past year. Plus, if its SVI holds near its two-year average of 45.5% over the next month, White’s modeling shows that an at-the-money (ATM) JD call option could potentially return 157% on another expected bounce from support at the 100-day trendline. In other words, prospective call buyers could double their money on a 13.7% gain in the shares.

An unwinding of short interest could push the stock higher as well. During the last two reporting periods, short interest rose 12.6%. Plus, it would take over three days for shorts to cover these bearish bets, at JD’s average pace of trading.

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