DANG: Consolidation Short

  • NYSE Symbol: DANG(Chinese ADR)
  • Stock Price: $5.90
  • Market Cap: $483.63 million
  • Average Daily Volume: 1.6 Million
  • Average True Range: $.26
  • Beta: 4.09
  • Short Float: 7.67%
  • Short Ratio: 2.57

Trade Idea

Dangdang (NYSE: DANG) is an e-commerce website for Chinese consumers. It is similar to amazon, where they sell all types off goods like books, electronics, clothes etc.

DANG has presented us with a low risk high reward short. Over the past few months it has been trending lower, but in recent weeks you can see the selling has gotten more aggressive in the charts. Now there are a few things driving shares of DANG lower.

  • China’s overall economy
  • Increase pressure from competition
  • Declining margins and profitability in recent quarters
  • China lifting ban on one child per family

China has been facing some trouble in recent months and it doesn’t seem like the economy will be getting better anytime soon. China just had one of its worst stretches in Chinese stock market history. DANG has been seeing pressure on its margins from other competitors in China. Notably names like Alibaba and JD.com. Those two companies have been seeing stronger growth with much better market valuations then DANG. The results of DANG’s latest quarterly reports haven’t been good either. Also China lifted its ban on families having only one child. Investors have been expecting a baby boom in China, and that contributed to a rise in DANG’s stock price. The company has been selling goods for babies, but with only 3% of Chinese applying to have more than one child, that boom might not be on the way just yet. This is another major reason DANG stock price has been down nearly 60% in just a few months.

Now why I’m interested in this trade is purely based on the technical setup.  DANG has been moving lower aggressively since June. It had a nice sell off and has been consolidating and holding lower. This is a technical pattern with a very high success rate. We have a clear entry point for the next leg lower and we won’t be risking much either on the trade. DANG is currently trading around $5.90 and if the stock is to move higher, you would exit the trade at $6.30.  I would recommend buying calls on DANG just to make sure you hedge yourself for a worst case scenario. I’m expecting for a move into the $4 or $3 range.  Below there are some charts which explain the technical setup further.

DANG 4hr dangdaily