China Stock Sounding Bearish Alarm

The equity has plummeted after previous signals

U.S. stocks are in the red for a fifth straight session, as traders jeer an ugly February payrolls report and a steep drop in Chinese exports. What's more, one China-based stock could extend its recent downtrend, if history is any indicator. Below, we'll take a look at why short-term bears may want to target Chinese e-commerce concern JD.com Inc (NASDAQ:JD).

After a strong rally off its November lows below $20, JD stock is pacing for a 6.3% drop this week. What's more, the equity just came within one standard deviation of its 52-week moving average, after a lengthy stretch below this trendline. There have been three other signals of this kind in the last 15 years, after which JD was lower three months later each time, averaging a loss of 22.2%, per data from Schaeffer's Senior Quantitative Analyst Rocky White. From the stock's current perch at $26.88 -- down 3.5% today -- a similar drop would put JD at $20.91, back around the aforementioned lows.

An unwinding of optimism in the options pits could pressure JD.com shares lower. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly five JD calls for every put in the past two weeks. The resulting 10-day call/put volume ratio of 4.98 is in the 86th percentile of its annual range, pointing to a much healthier-than-usual appetite for bullish bets over bearish of late.

While calls traded have outnumbered puts on an absolute basis today, it's the latter that's seeing accelerated volume. Roughly 28,000 JD puts have changed hands thus far -- almost two times the average intraday amount. The most popular put is the April 27 strike; buyers expect JD to extend its retreat beneath $27 through the next few weeks, before the options expire.

While the aforementioned technical signal has been a warning sign for JD shares in the past, the stock's trajectory will more than likely be determined by what happens with U.S.-China trade relations. The lack of a trade deal between the two nations -- or another round of dismal trade data out of China -- could weigh heavy on the stock.