History Says Chuck This China Stock

The shares of Chinese e-commerce concern Baozun (BZUN) popped on Monday, as stocks rallied on news of a 90-day tariff cease-fire between the U.S. and China. However, the shares just flashed what’s been a sell signal in the past, suggesting traders may want to hold their horses before buying BZUN.

Baozun stock gapped lower on Nov. 12, as traders jeered the company’s Singles Day stats. The security subsequently touched a year-to-date low south of $30 on Nov. 20, before rebounding into the $36-$37 region to start December. Now, the shares are facing potential resistance in the $39 area — where BZUN was trading before the aforementioned bear gap, and home to its descending 50-day moving average, which has ushered the stock lower since its mid-June peak.

The shares are also back within one standard deviation of their 40-day moving average, after a lengthy stretch below this trendline. There have been three times in as many years that BZUN has run up to this moving average in similar fashion. After those instances, the stock was down a month later two times, and averaged a one-month loss of 3.42%, per data from Schaeffer’s Senior Quantitative Analyst Rocky White.

Despite the stock’s struggles on and off the charts, seven of nine analysts following BZUN maintain “buy” or better opinions. Plus, the consensus 12-month price target of $47.82 represents expected upside of 31.4% from Tuesday’s close of $36.40. Should the Chinese internet issue extend its second-half plunge, or should the U.S. and China fail to reach a concrete trade deal, a round of downgrades or price-target cuts could exacerbate selling pressure on the security.

Traders looking to speculate on BZUN’s short-term trajectory should consider options. The stock’s Schaeffer’s Volatility Index (SVI) of 66% is in the bottom third of its annual range, suggesting near-term options are pricing in relatively low volatility expectations. Right now, the equity’s December 40 put is asked at $4.60, meaning buyers would need BZUN to retreat beneath $35.40 (a 1-point drop) by the close on Friday, Dec. 21, in order to profit.