Technical Analysis and Market Entry: Alibaba (BABA) – Set to Dominate for the Foreseeable Future

  • Alibaba Group Holdings (BABA) has gained as much as 50% from the start of the year and is on a strong recovery path.
  • The Chinese giant is an attractive long-term hold, with strong growth prospects and projects leveraging blockchain technology. 

BABA: Recent Price Behavior

Alibaba Group Holdings (BABA) has enjoyed a solid run of gains through 2019 so far, after staging a strong rebound at the beginning of the year. In October 2018, the price entered a very steep sell-off, which was seen very much across the market. The bear dominance came after the all-time-high print up at $211; the bulls were unable to maintain that upside momentum. BABA plummeted almost 40% to $130, which was the lowest level since June 2017.

In the latter stages of December 2018, Alibaba shares began to bottom out, as detailed above at $130. Buyers gradually came back in supporting the foundations of a recovery, which started to pick up a steady pace at the start of 2019. Weekly, gains have proven to be consecutive, recovering as much as 50% at $195. Last week, the price was able to print the highest levels since July 2018, up at $195.

Alibaba weekly chart.

U.S.-China Trade Tensions

Given the tensions again flaring up between the U.S and China over the last week, it has forced a chunky pullback on the U.S. stock market. As a result, Alibaba has retreated down at a demand zone which supported the price in 2017 and 2018, i.e. the $170-$165 range. It is the last major area of support seen and is preventing a full reversal of the 2019 recovery. Should this fail to withstand the downside pressure, then the price could quickly be back at $130.

Quarterly Earnings Report

Alibaba is scheduled to announce its quarterly earnings before the market opens on Wednesday 15th May. General street expectations are for them to report an earnings per share of $1.05 for the current fiscal quarter. Last quarter, the company’s revenue grew at its slowest pace since 2016 on the back of a slowing Chinese economy, which has continued to hurt some of the biggest companies in the world.

It is essential however for investors to know that Alibaba is still very much a tech growth play, as the company is heavily focused more on expansion than earnings at this point. There are high expectations and prospects for the company, given it active work on industry-changing technology projects, such as blockchain.

Alibaba is dominating slowly with blockchain patents. The CEO of Alibaba’s financial arm recently said, “We are the most patented company in the world of blockchain technology.” The company’s blockchain patents cover areas such as invention, design and utility.

Trade Recommendation

Taking a buy around the current price territory is looking very much attractive, given the technical support and longer-term bullish fundamental bias. If the below demand zone continues to withstand the current downside market pressure, then BABA bulls could firmly capitalize. The first short-term target would be for a retest up at the all-time-high area, around $211. Stops could be placed just below the noted demand zone ($170-$165) at $161.

Finally, the stock is worth an additional longer-term hold beyond the new potential all-time-high print. As detailed earlier there is a lot to be excited about, especially with all the blockchain based blueprints lined up for execution. The company is here to dominate the industry further and remain a strong leader for the foreseeable future.

Featured image courtesy of Shutterstock.

Ken has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.