Alibaba Group Holding Ltd (NYSE:BABA) rallied 2.5% on Monday, April 10, in what through the lens of technical analysis was a clear breakout move. All else being equal, BABA stock should be headed toward even more upside in the coming days and weeks.
When I last mused about Alibaba on March 14 when the stock was trading around $105, I pointed to the tight trading range that the stock had traded in over the prior weeks. I said a next near-term upside target would be $110, possibly followed by $120. One week later, BABA reached my first price target … and possibly started a next leg higher.
Before looking more closely at the charts of Alibaba stock, allow me to say a few words about my biggest personal weakness in trading. It directly relates to setups like the one we currently have in BABA stock.
On any given day, I tend to find at least one new, high-probability trading idea that’s almost immediately actionable. The trouble is, more often than I care to admit, I fail to actually take part in these trades. By my estimate, I don’t take about 20%-30% of the trades that I deem high-probability. I simply fail to get in when they signal.
Sure, sometimes I have portfolio restraints. Sometimes, I’m already adequately located to any given sector or industry. Plenty of other times, however, I simply don’t get into these trades for no good reason at all. This leads to plenty of missed opportunities and lower performance than I would’ve achieved if I had taken all the qualified high-probability trades.
I highlight this because BABA’s current setup is one that qualifies as high-probability for a breakout trade toward $120. However, it’s also a trade that I’ll have to make a conscious effort to leg into. That’s partially because the broader stock market’s lackluster action of late makes this trade seem less urgent than it is.
BABA Stock Charts
Looking at the multiyear weekly chart we see that Alibaba’s rally yesterday broke shares past well-defined horizontal resistance around the $110 mark.
That resistance had been in place for a couple of years.
On the daily chart, we see that from a momentum perspective — as represented by the MACD oscillator at the bottom of the chart — Alibaba shares became overbought in late January. This in turn pushed the stock into a multiweek sideways move that by mid-Mark led to a next move higher back to the 2016 highs.
After the most recent two-week sideways consolidation move, BABA on Monday finally pushed higher again and past the aforementioned technical area of resistance around the $110 mark.
From here, barring any sudden bearish reversal, BABA stock looks poised to move toward $115 and $120 in coming weeks. From a swing trading perspective, any bearish reversal in which the stock scores a daily close below $107 would be a stop-loss signal.
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