Shares of Chinese stocks have struggled year-to-date, this is partially due to an economic slowdown and partially the result of political and geopolitical rhetoric.
Among the casualties of this downdraft in Chinese stocks is behemoth Alibaba (NYSE:BABA), which is reaching a key inflection point just ahead of its earnings report next week. I see a bullish trade setting up.
As a general rule, I do not hold trading positions through earning reports. I won’t even buy stock ahead of earnings. What I propose here is an Alibaba stock play that could be made either ahead of earnings or after the report. Just make sure you’re aware of the risks of trading BABA before earnings.
The longer-term outlook for Alibaba continues to be very promising. BABA continues to expand into other areas as the world increasingly orders direct from China as opposed to local retailers.
I know many people who often circumvent Amazon.com and go directly to Alibaba for significantly less cost and, occasionally, free shipping.
Click to Enlarge Moving on to the charts, we see that BABA stock had a big run off its 2016 lows, but that this run slowly started to run out of steam by late 2017.
While BABA stock continued to make higher highs into June of this year, the going became much more choppy as buyers and sellers found equilibrium, i.e. the stock became a tug of war between the bulls and the bears.
In this choppy trading, the stock routinely found good technical support in the mid-$160s, which is where the stock once again landed on Wednesday after the latest round of selling.
From this perspective, BABA stock is now at an interesting juncture just ahead of its earnings report.
Barring some really concerning news and outlook by the company the stock from here should have limited downside.
Click to Enlarge On the daily chart, we see that the latest selling now also has the stock’s MACD momentum oscillator at significantly oversold readings just as the stock has ‘corrected’ 20% from its June highs. A 20% downdraft often enough is where stocks can stage a bounce, so you know and all else being equal.
Less risk-averse traders could consider buying some BABA stock around the low $170s for a rall back into the mid $180s.
The risk here, of course, is that the stock gaps lower after next week’s earnings report.
More conservative traders will want to wait for the earnings report to pass and if the low $170s support line holds then the stock could be bought for a move up into the mid $180s.
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