Meituan (3690.HK): Consolidation on the Upside

Close-up of market chart
Meituan (3690), operating food delivery service, soared around 200% from March low to recent high at HK$209.8 before easing around 10%.

Recently, Hang Seng Index Company launched a new Index - Hang Seng Tech Index, and Meituan weighed more than 8%. The new index could attract the capital inflow from the passive fund.

Meituan Chief Scientist Xia Huaxia said the company is now handling millions of food orders a day, and expects the orders to increase 3-4 times in coming 5 years, according to Bloomberg.

Recently, Citigroup lifted the target price of Meituan to HK$245, from HK$145 and kept the rating at "Buy". The Bank said the company is likely to be able to sustain its strong valuation, as investors increasingly recognize the delivery-service company's solid growth expectation.

However, J.P. Morgan cut the rating of Meituan to "Neutral" from "overweight".

From a technical point of view, the stock is trading within a convergence zone on a daily chart.

In fact, the prices broke below 20-day moving, but it still stayed above the 50-day moving average. 

In addition, the relative strength index was back to the neutrality level at 50, suggesting the lack of momentum for the prices.

In this case, investors should stay neutral and wait for the breakout signal.

On the upside, a break above the declining trend line could confirm a breakout of flag pattern. The stock would consider an up move to the resistance levels at HK$213 (the previous high) and HK$231 (138.2% retracement).

Alternatively, a break below the rising trend line and the overlap support level at HK$166 would trigger a deeper pullback to the next support level at HK$149 (the low of June 8).

Source: GAIN Capital, TradingView
Related tags: Equities Stocks China

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