Alibaba Group Holding Ltd (NYSE:BABA) — Shares of the Chinese online commerce giant got a 0.9% bump on Wednesday. While nothing dramatic happened on a daily closing basis, BABA stock is constructively positioned for a leg higher following a post-earnings rally last week.
On May 7, the company reported better-than-expected quarterly earnings of $0.48 versus a consensus estimate of $0.42. More importantly for a growth company was top line growth of 45% with revenue of $2.81 billion, also beating analysts’ expectations of $2.77 billion. Furthermore, the number of annual active buyers jumped 37%, and gross merchandise volume in China was up 40%. With numbers like that, it wasn’t a big surprise that BABA stock rallied on the report.
On the chart, we can see that after a classic post-IPO honeymoon phase in which shares soared about 40% in a month to a high of $120 in mid-November, the air quickly came out of their sails. BABA stock crashed, and by March, broke below the October lows. From a technical point of view, this was necessary to shake out the weak hands.
BABA stock then slipped into a trading range where it failed to overtake the $86 area several times. On May 5, two days before the latest earnings report, shares fell below the trading range to instill a little additional fear, only to rally more than 10% after the report on a big breakaway gap. The gap up pushed the stock through the aforementioned resistance line near $86. This type of move is conducive to a further rally in coming weeks or months.
Traders should look to buy BABA stock on a sustained break above $88 on a daily closing basis with a first upside target near $92.50. A move back below $85.50 would negate the breakout until the next attempt higher.
