What to Do With Pinduoduo After Its Long Decline

Bigger retracements typically mean the bull move is over and done.

Pinduoduo Inc. American Depositary Receipts (ADRs)  (PDD)  are in a downtrend. This company is the largest agriculture-focused technology platform in China. It has created a platform that connects farmers and distributors with consumers directly through its interactive shopping experience.

This business sounds promising but the history of the stock's performance is not supportive. Let's check out three PDD charts.  

In the daily bar chart of PDD, below, we can see that prices tripled from last October to February but that was the end of the run. Prices have been in a downtrend from late February into late August. The August-September bounce did little to improve the technical conditions. The shares are trading below the declining 50-day moving average line and below the bearish 200-day line.

PDD has retraced nearly its entire rally and that is not a good sign as retracements of one-third or one-half are within the realm of "normal" and even welcomed. Bigger retracements typically mean the bull move is over and done.

The On-Balance-Volume (OBV) line is weak and the Moving Average Convergence Divergence (MACD) oscillator is bearish. The MACD oscillator has been below the zero line since March.

 

In the weekly Japanese candlestick chart of PDD, below, we can see that the shares have been trading below the declining 40-week moving average line for several months now.

 

The weekly OBV line has declined all year and the MACD oscillator has been bearish since May. The $45 area may or may not be the next support zone. The farther back in history you go the less reliable support (or resistance) zones become.  

 

 

 In this daily Point and Figure chart of PDD, below, we can see that prices have reached a downside price target of $85. 

 

 

Bottom-line strategy: Over the years of looking at charts I find that stocks that give back too much of a strong rally are no longer strong. Smaller corrections are okay but really big corrections tell us there are problems below the surface.

 

Employees of TheStreet are prohibited from trading individual securities.