After a weak November and early December, shares of Chinese e-commerce company Alibaba Group Holding Ltd (BABA) have begun to perk up again, and now Alibaba stock looks like it could get giddy into year’s end. Active investors and traders have clearly defined risk with BABA’s current technical picture.
Alibaba delivered its first earnings report as a publicly traded company on Nov. 4, and shares rallied on the back of the better-than-expected numbers. For the quarter, Alibaba earnings came to 46 cents, beating expectations by a penny, and sales of $2.75 billion beat the consensus estimate for $2.7 billion.
A plethora of brokers have since reiterated positive comments about the stock, and on Nov. 14 — when 13-F filings came out — we found that several well-respected hedge funds held Alibaba stock, including Soros Fund Management and Appaloosa.
While BABA stock has only been publicly traded for three months now, it has showed us enough trading history to develop some good support and resistance areas to focus around for the purpose of risk management. For my part, while I know some traders like to trade new initial public offerings right out of the gate, from a swing trading perspective with holding periods of at least a few days to a few weeks, a stock has to show me a rhythm and develop some technical cred to help define better profit target and stop-loss levels.
Alibaba Stock Charts
After a few weeks of sliding sideways following the September IPO, Alibaba stock began a sharp rise that saw further fuel from the aforementioned November earnings report. BABA then topped out in early November and settled into a much-needed, healthy consolidation phase that took the shape of what could be considered a big bull flag pattern. On Dec. 9, the stock had retraced exactly 50% of its entire October-November rally and began to stabilize (blue bubble). After a few days of moving sideways, Alibaba stock then rallied 3% on Wednesday, breaking past the diagonal resistance line from the November highs and likely out of the bull flag formation.
Zooming in further on this chart, I added my near-term reference moving averages — the eight- and 21-day MAs (blue and yellow lines, respectively). With Wednesday’s rally, BABA stock has again pushed back above both of those moving averages as well as past a seven-day horizontal line of resistance.
The setup here is very straightforward: Active traders and investors can use Wednesday’s pop to hop on board for a rally into year’s end and toward the $115 area. Any break back below $105.50 at the latest would negate the setup and call for more time.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
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