On Thursday I gave some instruction on JD.com (JD). The stock broke out on Friday on a high volume move. Let’s look at that stock. Is it too late? Probably not. (January 26, 2018)
We are looking at JD ( NASDAQ: JD ). On Thursday night I had mentioned, in our Strategy Session, that JD ( NASDAQ: JD ) was close to breaking out, it is looking really good. What I had done was, I had drawn this line, 48.92, which was this last high here. My note was, if this breaks out above 48.92 this could do some work here, in a good way. So my suggestion was, put a buy stop there or at least an alert. It is a good tactic for you to use, that is buy stops or alerts, definitely both. Frankly, if you are going to put a buy stop in you want to know if your trade has been executed.
The deal is, you are always better off getting in before the breakout as long as there is, in fact, a breakout. One of the ways you are in here is, you look at this, you look at the fundamentals, the fundamentals are solid, it is social media, it is all good here; Chinese company. The stock is here and you want to start building a position in anticipation that the stock is going to break out. Now, there is no guarantee but that is why, again, you are building a position in anticipation. That means you think the stock is going to do that. You are not going to load the boat here because you don’t know, it might do that instead, stranger things have happened. Just because you see a potential pattern, seriously it doesn’t entitle us to make money.
What we do is, you see this stock pulling back here (I am going to go back even a couple days further, we are going to really look at this), so you see the stock pulling back here. This is known as, you could call it a dragonfly doji, you could just call it a long hammer, kind of like the opposite of Thor’s hammer, this has a long handle and on the high volume it really represents kind of a flush of sellers who, for whatever reason maybe they bought and they were hoping it will go up and it didn’t and they are selling off, whatever the case may be.
There is high volume selling so that is actually just kind of a setup. It is what comes next that really matters. That would be this, where the low, the intraday low was much higher than this last one. So this would be one, if you are looking at it, you can really kind of dissect this with a scalpel, really do some microsurgery and say, “Okay, I see what was happening. How many days in a row are these solid candles, where the close is lower than the open?” We have got one, two, three, four, five, six, seven. Seven consecutive days sellers were the stronger of the two, buyers or sellers, into the close. So this is kind of an ominous thing or at least a bad thing. But then when you see this kind of move here where the low is much higher than this one. You can say, “Okay, it looks like maybe the sellers are kind of petering out here.” The stock is still in an uptrend, above the 20-day moving average. The 50-day is moving higher. The 200-day is moving higher. The 20-day is moving higher. The price is above all of those. What is not to like?”
So you start building a position and you would keep the stops, say, when you are first taking this on, if you were taking this I will tell you exactly how I would take it. If you are taking it on this day, if you really wanted to be risk averse you could even keep a stop just a little bit below that day’s intraday low. For me, I kind of think you want to make it a little bit lower than that. Give it a little more room and put the stop below this day’s intraday low so you are in here. Or maybe you are waiting and so first thing in the morning you see this stock. If you have been looking at this pattern you don’t want to wait until here to enter; or up at the top. If you see this pattern and you haven’t bought here, and that is fine, it is always you know exactly where to buy when you are looking at a chart of prices that have already happened.
Let’s say you are looking at this and you say, “I want to buy it if it shows signs of follow through.” Then, sure enough, the next day it gaps up a bit and opens right above or right at the prior days open. This is kind of loosely put, a three-day reversal. We have a down move here, that would be day one. This is day two. And then finally day three, this is moving higher so you are in here a little bit. You have got a stop in place that locks you in for a very small loss if it happens. And then you are good. And then finally we get this breakout. And so if you were looking at this stock all along you are already in and then you are adding to it when it hits the 48.92.
Now, let’s say you didn’t do that. That’s okay, buy it now. That is what I am saying. Buy it now, this time your stop can’t be down here, it is just kind of too loose. That is a loose stop; you are going to be risking, let’s say you are buying it here, you put your stop down there, it is a 14-15 percent risk, that’s brutal. So instead you put it right down here, maybe below Friday’s intraday low here of 48.11. It is kind of a crap shoot when you are buying these types of breakouts. Because sometimes the very next day, on Monday, this could gap down a little bit. And then, of course, it will either reverse of it will continue.
But this breakout was real. So my vote is for continuation. When you see 25 million shares traded and the stock is up 6.5 percent, that is institutional buying. It is not retail guys day trading. It is institutional buying and they don’t buy aggressively one day and then sell aggressively the next. So frankly, if this stock takes a rest, if it does pull back, I would buy more. I think this thing is going to work, so that is how I would trade JD ( NASDAQ: JD ).
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