Trade of the Day: Alibaba Group Holding Ltd (NYSE:BABA)

BABA faces concerns as transaction volume on e-commerce sites has slowed and rampant counterfeit goods plague its platforms

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We’ve opened a new bearish trade on Alibaba stock. Everywhere you look, the market is souring when it comes to how much it is willing to pay for large tech and e-commerce companies. Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) sold off after its earnings announcement, traders are dropping Apple Inc. (NASDAQ:AAPL) and even eBay Inc’s (NASDAQ:EBAY) strong revenue and earnings beat this week couldn’t keep the stock up for long.

This morning, the advance first-quarter 2016 gross domestic product (GDP) numbers added fuel to the bearish fire, as they showed that consumer spending is slowing in the U.S., and we know economic growth has been slowing in China and the rest of Asia. None of these trends are good for BABA.

BABA started breaking lower this week after climbing with the rest of the market, and we anticipate the stock is going to continue dropping in the run up to the company’s quarterly earnings announcement on May 5, before the market opens.

Alibaba is facing concerns that the transaction volume on its e-commerce sites is slowing as the company deals with the rampant counterfeit goods that are plaguing its platforms. Even the news that BABA’s finance affiliate, Ant Financial Services, raised $4.5 billion in its latest round of fund raising — giving the company a valuation of $60 billion — hasn’t been enough to send the stock higher.

We expect the stock to drop back down toward $72.50. This level served as resistance in January and once again in early March, and it should provide some support for Alibaba stock on its way back down.

‘Buy to open’ the BABA June 75 Puts (BABA160617P00075000) for a maximum price of $2.70.

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