Alibaba Group Holding Ltd: BABA Stock Is at a Major Crossroads

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Shares of e-commerce company Alibaba Group Holding Ltd (NYSE:BABA), while flat for all of 2016, is showing promising technical signs of a next leg higher — right at the same time that it’s starting to face a fundamental headwind.

Beat the Bell: Alibaba (BABA) StockAfter Alibaba announced its latest quarterly results on May 5, investors seemed pleased with the 40% year-over-year growth in revenue — and active buyers jumped by 16 million to 423 million — and BABA stock advanced as a result. On Tuesday, after a couple of weeks of consolidating, Alibaba shares rallied, and it set in motion the potential for more upside momentum.

Following the results, analysts at Credit Suisse raised their price target for the stock to $100 and RBC Capital raised their price target to $105, so 25%-30% upside.

In a global low-growth environment, investors will jump at the chance to grab a rare bright spot. Alibaba stock might well be one of those opportunities … though Wednesday’s move lower on news that the company is being investigated over accounting practices bears a lot of watching for that to be the case.

Alibaba (BABA) Stock Charts

Moving onto the big picture via the charts, note that despite the ongoing growth story at Alibaba, shares have struggled since the weeks following its 2014 initial public offering. Numerous factors may be to blame for this, but the chart has notably improved since.

After falling to fresh all-time lows last September, the stock rallied and found resistance in the blue band. But when BABA stock dropped again along with the broader market in January, its early-February lows marked a higher low versus the September lows. The rally off the February lows thus far has found resistance at the aforementioned blue band again, but thanks to Tuesday’s 2.68% rally, the stock managed to push past the diagonal line of resistance from last spring.

Note that Alibaba stock has yet to rally to a higher high (i.e., above the late-2015 highs near $85), but Tuesday’s move thus far looks promising on the weekly chart.

Alibaba BABA stock chart daily
Click to Enlarge

On the daily chart, we see that the yellow 50-day simple moving average has acted as a good line of reference for BABA stock. Most recently, after Alibaba broke back above this MA in early march, it once again found support at it, and has throughout this month.

Tuesday’s rally also broke Alibaba stock out of a multiweek consolidation phase and confirmed the May 5 post-earnings rally.

Alibaba BABA stock chart daily
Click to Enlarge

Given all that, active investors and traders should jump aboard this recent breakout in BABA stock, using the 50-day MA as a stop-loss and the $85-$86 area as a first upside target.

However, I should note: BABA looks to open Wednesday about 2% to 3% lower. That’s because the company has said that it’s currently being investigated by the SEC over accounting practices, saying it ” had provided the agency with documents and information about its policies for consolidating affiliated companies and its practices for related-party transactions,” according to the WSJ.

As long as the stock doesn’t close below the 50-day moving average on Wednesday, this trade still looks to be OK. Should it finish below, Alibaba should be re-evaluated.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/alibaba-group-holding-ltd-baba-stock-breakout/.

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