DADA Nexus Ltd

Company Overview:  Dada Nexus Ltd. (NYSE: DADA) engages in the provision of platform for local on-demand retail and delivery in China. It operates JD-Daojia, a local on-demand retail platform; and Dada Now, a local on-demand delivery platform in The company was founded by Jia Qi Kuai and Jun Yang on July 8, 2014 and is headquartered in Shanghai, China.

Why DADA Share Plunged Recently?

Dada Nexus (NASDAQ: DADA) is a Chinese grocery store and online delivery platform. This month, the company's shares fell sharply after it disclosed in an SEC filing that an audit had uncovered some questionable activities that "may cast doubt" on the company's ability to make money from its online advertising and marketing services.

Additionally, it noted that its revenue projection for the fourth quarter of 2023 was no longer accurate and that its income from online advertising and marketing services was inflated by around $70 million in the first three quarters of 2023.

Is this situation becoming worse?

Dada stated that the audit committee will employ independent expert consultants, such as a forensic accounting firm from outside the company and conduct an independent review of the situation.

Even though such revenue amount represents only 5% of Dada's overall revenue, accounting fraud is never good and may require additional restatings of statistics. Due to the numerous examples of Chinese companies that have declared bankruptcy following the discovery of accounting irregularities, such as Luckin Coffee, investors are also prone to be wary of Chinese businesses and fraud.

Technical Analysis

On Daily price chart DADA shared recorded a mild bullish range shift as the leading momentum indicators the 14-day Relative Strength Index (RSI) moved above 40. However, momentum was not backed by strong volume, so possibility of current momentum shift is still uncertain until and unless it breaks crucial resistance levels. The stock might face multiple resistance near the current levels including 200-day EMA, Middle band of the Bollinger Band ©. A breakout above USD 2.05 could send stocks towards USD 2.5 – USD 3.00 range.

Conclusion

The market is strongly pessimistic on DADA shares right now. Its stocks is facing two significant headwinds. 1) A significant amount of bearishness in the Chinese basket as a whole due to macroeconomic challenges in China and regulatory actions taken by both China and the US; 2) A recent accounting scam that added a lot of bears and shocked investor sentiment. The volume of shares traded in the company, however, has not significantly bolstered the stock's recent recovery from the most recent swing lows. Higher upside potential will be essentially limited till the stock posted a deceptive breakout over the USD 2.20 – USD 2.50 region.

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing. 

How to Read the Charts?

The yellow colour line reflects the 21-period simple moving average (SMA) while the blue line indicates the 50- period simple moving average (SMA). SMA helps to identify existing price trends. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The orange colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The red and green colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps with easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock. 

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar 

Note: Trading decisions require a thorough analysis by individual. Technical reports in general chart out metrics that may be assessed by individuals before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is January 31st, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the New York Stock Exchange (NYSE), NASDAQ Capital Markets (NASDAQ), and or REFINITIV. Typically, all sources (NYSE, NASDAQ, or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’