Trade of the Day: Alibaba Group Holding Ltd Nears a Buying Opportunity

BABA stock still offers opportunity

By Serge Berger, InvestorPlace Contributor

Shares of Alibaba Group Holding Ltd (NYSE:BABA) continue to have an amazing run and are now higher by around 100% for the year-to-date. Over the past few days, BABA stock has pulled back a little and is coming into a more attractive buying area again.

Trade of the Day: Trade of the Day: Alibaba Group Holding Ltd Nears a Buying Opportunity
Source: Photo by via Alibaba

Given the fact that we currently find ourselves in the depths of earnings season, I would be remiss not to point out that Alibaba is scheduled to report its next batch of earnings on Nov. 2. By my estimate a major reason why traders active investors lose money is because they are not aware of key corporate events of any given position they hold — such as earnings dates — which are often the events leading to the most volatility in stocks.

Those market participants then get whipped around by this to-them “unexpected” volatility and end up with sizable losses. The better way to trade during earnings season is to either look for trades into an earnings report or wait for earnings to be released.

Either way, holding “trading positions” through major earnings reports over time is a losing strategy.

When I last offered a trade idea on BABA stock on Sept. 12, I said the following: “With the marginal breakout move the $180 area becomes the next upside target, possibly followed by $190 and $200. Any meaningful bearish reversal is a stop loss from a swing trading perspective.” The primary upside target at the $180 level was then reached just a few days later while the $190 and $200 area bigger picture upside targets remain unfilled.

BABA Stock Charts

Click to Enlarge

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

The multiyear weekly chart, despite the fact that I am a long-term believer in the Alibaba story, simply remains much too steep and overbought for me to be able to add to new long-term longs at this juncture.

Where a better longer-term entry would come about is difficult to say at the moment because steep charts of this magnitude can easily correct 30% or more and still hold longer-term trends intact.

Click to Enlarge

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily chart, we see that the yellow 50-day simple moving average has been a source of technical support all year and that each time the stock gets too far removed on from this line on the upside, it tends to mean-revert back to it. The same dynamic seems to be in play again at present, and although BABA stock is still trading about 2% above this line, it is worth watching closely.

Less risk-averse traders could look to nibble on BABA stock for a trade as it gets closer to the 50-day moving average for a trade back up toward a first upside target around $185. More cautions traders, on the other hand, will want to wait for the Nov. 2 earnings report to pass and if a successful retest of and subsequent bounce off the 50-day comes about, a trade to the upside toward $190 and $200 should set up.

Check out Anthony Mirhaydari’s Daily Market Outlook for Oct. 18.

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