It remains an ugly market and China’s Alibaba Group (NYSE:BABA) certainly hasn’t proven immune. Still, off and on the price chart, Alibaba stock is looking like a certain survivor and potential future name for purchase. Let me explain.
Just when many investors may have thought a lasting bottom was in, along comes Monday. Broader averages across the globe were down significantly and undercutting last week’s oversold, bear market lows. Stateside, the broad-based S&P 500 index was off almost 12%, while the iShares China Large-Cap ETF (NYSEARCA:FXI) and tech giant Alibaba fared only slightly better, down 10.3% and 7.8%, respectively.
Fueling the sell-off is a second emergency rate cut by the Fed, as well as a growing and dizzying number of hard closures from businesses and countries to curb a wider coronavirus pandemic. While the actions appear necessary, the sum total is raising the specter of a global recession and providing heightened uncertainty over what’s next.
Still, as important as it is to not ignore the scope of damage already done by COVID-19 and appreciate conditions are likely to get worse before better, it’s not the end of days either. Despite the painful casualties and those surely waiting in the wings, a zombie apocalypse is still fare for watching on Netflix (NASDAQ:NFLX) or other streaming services or channels, not on Main street.
It remains a time to keep a cool head and look beyond the next couple — and nearly certain ugly — months ahead.
And one certain survivor for investors will be Alibaba. With a massive cash war chest second only to Apple (NASDAQ:AAPL) and business tendrils comparable to Amazon (NASDAQ:AMZN), Alibaba stock will not only survive, it will thrive once more. But given today’s obviously ill market, asking for a bit more from the BABA price chart should be worth the wait.
Alibaba Stock Monthly Chart
Source: Charts by TradingView
Last year was a very good one for BABA. Alibaba gained nearly 55%. Shares also finished their strong market-beating performance by breaking out of a large W-shaped base nearly two years in-the-making to fresh all-time highs. Of course, it nearly goes without saying 2020 hasn’t proven as bountiful for the company’s shareholders. Still, Alibaba stock has been holding its own technically and remains a name worth monitoring for allocation into the portfolio.
Despite the failure of 2019’s breakout and today’s bearish environment, Alibaba is still — and somewhat surprisingly — positioned in a bullish pattern of higher highs and higher lows. That’s good news for investors looking to buy a counter-trend pullback. But I wouldn’t be too fast to pull the trigger. As the monthly chart of Alibaba also shows, stochastics aren’t in a favorable position for today’s buyers. Further, meaningful price support for an intermediate bottom to form is well-removed from current prices.
Within the framework of Alibaba’s uptrend, long-term trend-line and lifetime 38% retracement support are near $160-$165. Compared to BABA’s current market price just under $179, that’s roughly 7.8%-10.6% of downside risk. It could get worse for the stock without jeopardizing the uptrend either.
Referring back to Alibaba’s pattern of higher lows, I’d argue shares could drop toward a challenge of the May bottom near $148 before the price formation is truly called into question. Also, Alibaba stock’s bullish leadership could become its own worst enemy and an easy target for technical failure if the broader market remains unsupportive.
The good news is if BABA does find the path of least resistance is lower and shares break their uptrend, a bottom will eventually form at more attractive prices and valuation. And bottom-line, with stochastics just finishing a bearish crossover in overbought territory, it’s an easy recommendation in today’s market to advise other investors’ to appreciate, but not touch, Alibaba’s price action right now.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
