It has been a busy week of earnings, but next week is going to be chock full. Among the notable companies reporting earnings next week is Alibaba Group Holding Ltd (NYSE:BABA), which always gathers a crowd around its earnings reports and often also sets up nice trading opportunities in BABA stock after profits have been reported.
Alibaba is scheduled to report earnings on Tuesday, Jan. 24, before the start of trading.
While the stock market’s performance in January has been rather lackluster given the excitement at the end of last year, I believe the tone could change in a meaningful way next week. After today’s presidential inauguration, investors might wake this coming Monday to the first orders of business out of the new administration, and they’ll certainly wake to a week full of important corporate earnings.
Hence, January could shape up to be a classic ‘tale of two tapes.’
Furthermore, investor complacency (which right now is bullishness) has risen sharply over the past couple of months. Thus, from where I sit, stocks might be vulnerable to less-than-spectacular news from either the government or the corporate sector.
Alternatively, one could look at good fourth-quarter earnings in both absolute and relative terms (year-over-year growth in both top and bottom lines is a good sign) as already having been baked into the market for the time being, which in turn could lead to a more turbulent few weeks ahead.
BABA Stock Charts
Looking at the multiyear weekly chart of Alibaba stock, we see that an important rally took hold this past August into September. The rally broke the stock past previously sticky horizontal resistance around the mid-$80s. On Sept. 26, as this rally began to look long in the tooth, I offered that traders could look to lock in profits and wait for a pullback to ultimately buy shares again.
BABA stock proceeded to drop 20% over the ensuing three months.
By late December, Alibaba had once again reached/retested the previous area of resistance around the mid-$80s and promptly began to bounce. Note that this price area is made up of diagonal support, horizontal support, and the bottom of what could be labeled a big bullish flag pattern (two purple parallels).
Following next week’s earnings report, BABA stock stands a good chance of either breaking higher and thus out of the bull flag pattern (a buy signal) or reversing back lower to the aforementioned confluence support area in the mid $80s.
On the daily chart, we see that after a strong first few trading days of 2017, BABA over the past week or so has largely treaded water in a right trading range.
This tight consolidation/wedge pattern is taking place at the upper end of the aforementioned bull flag pattern as well as right below the 100-day simple moving average (blue). A gap and hold to the upside above $98 would offer traders a chance to buy the stock for a next upside target closer to the $108 mark.
Alternatively, a gap and hold lower below $94 could push the stock back toward the mid-$80s confluence support zone, setting up quick shorting opportunities for traders.
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