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Buy Alibaba Group Holding Ltd (BABA) Stock Now With a Discount on Risk

Use a lower-risk targeted butterfly to position for BABA stock’s breakout move

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I don’t know “Jack” about what’s lifting shares of Alibaba Group Holding Ltd (NYSE:BABA) Monday. More to the point, confidence in BABA stock’s price chart and a lower-risk spread opportunity means an otherwise fishy situation sets up a much more promising trade for bullish investors. Let me explain.

Buy Alibaba Group Holding Ltd (BABA) Stock Now With a Discount on Risk
Source: Shutterstock

Sometimes, in being able to live in the moment, it’s important to simply trust the price chart — on top of a longer-term underlying belief in the company you’re eyeing as an investment, of course.

That’s more or less (and mostly more) how this strategist sees BABA stock right now.

The truth is, often the market makes a significant move even before a headline-friendly catalyst arrives to RSVP traders it’s time to get in. In support of that behavior, BABA is up about 1.9% and leading a healthy bid in the iShares FTSE/Xinhau China 25 Index (ETF) (NYSEARCA:FXI).

Ironically enough, BABA and FXI are rallying in the face of challenging headlines warning of the bearish impact of a U.S. rate hike on Chinese equities and the country’s economic conundrum related to growth stabilization.

So if you’re watching a stock you’re already interested in, but wondering why on earth it’s moving today and can’t help but think, “there’s something fishy in Denmark” going on, it may just be time to act — even if you don’t know entirely what Jack Ma and Alibaba are up to as they look to expand their brand outside Asian markets.

BABA Stock Daily Chart

Back in mid-January in front of Alibaba’s earnings beat, I wrote optimistically about a nice-looking bullish flag setup in BABA stock. The chart, as it turns out, reciprocated as investors piled into shares and forcing an upward price gap.

Since the earnings reaction, shares of BABA have put together a lateral consolidation. For some, the pattern might appear to be a flat base — and for others, maybe a bullish handle within a corrective cup-shaped base. Either way and with shares of Alibaba stationed above the 62% retracement level, stochastics curling higher from oversold territory and now Monday’s heavier and above-average volume breakout, it’s all systems go for BABA stock.

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