Alibaba Group Holding Ltd (BABA) shares have recovered nicely during the broader market melt up, and now a low-risk entry is beckoning for spectators looking to get in on the game. BABA’s boasting a classic triangle pattern suggesting a breakout is imminent. And that means more profits for BABA stock bulls.
For starters, BABA is carving out a nice little “W” pattern on its weekly chart. Better known as a double bottom, the W suggests the downtrend that has defined Alibaba over the past year may well be over.
The slightly higher pivot low that formed in February reflects an aggressive shift in buyers’ behavior. For the first time since the downtrend took root, the bulls have halted a downswing before it took out prior support.
Look for BABA to return to the $85 zone in an attempt to complete and confirm the weekly double bottom.
BABA Stock Charts
Click to Enlarge
Drilling down to the daily chart reveals a nice ascending triangle that has developed over the past month.
Thus far, the $80 level has been unwilling to yield in the face of multiple rally attempts. At some point, probably soon, sellers at the $80 level will dry up and Alibaba shares will finally breakout. That’s the signal to jump aboard.
Click to Enlarge
Little resistance exists until the $85 level, making that the logical target for the triangle breakout setup.
Volume patterns are tilted toward the bulls supporting the breakout call. In particular, the past two trading sessions have seen heavy volume, which suggests buyers are swarming.
BIG Profits in Alibaba Stock
Buy the July $80 calls for around $4.50 if BABA stock can breach the $80 resistance level. The max risk is limited to the initial $4.50 debit and will be lost if Alibaba sits below $80 at expiration.
To cut the risk, you could bail if Alibaba breaks below its $76.50 support level.
The reward is unlimited, but short-term traders should consider taking profits if the stock rallies to $85 in the near future.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
