Alibaba Stock Is Poised to Set New Highs Soon

It is an astonishing fact that the Nasdaq is a mere 10% from the all time highs. This is mostly due to the strength of Amazon (NASDAQ:AMZN) and its cohort. This includes Alibaba (NYSE:BABA) … and Alibaba stock is the focus of our attention today.

Alibaba Stock Is Poised to Set New Highs Soon
Source: testing / Shutterstock.com

But first we have to acknowledge the fact that the world is still in quarantine, so businesses worldwide are on lockdown and no money is flowing through their profit and loss statements. Some countries, like Germany, announced their intentions to start reopening as early as this week. This is happening even in the U.S. Georgia, for instance, will let some sectors go back to work on Friday.

This is all to say that the state of global affairs is dire and the stock markets remain at great risk from a depression. I know we are not supposed to discuss the “D” word but this is a mighty deep hole we’ve placed ourselves in. Luckily the governments realize it and they are throwing massive amounts of money at the issue to avert disaster. The U.S. opening bid was a $2 trillion fiscal package which included money directly to citizens and businesses.

There are also bailout plans for many major industries like the airlines which gets billions from the treasure this week.

BABA Stock Is in Great Shape Under the Circumstances

Luckily, things look better for our star today. Going into its earnings, BABA stock is in good shape for the long term. It sits roughly 8% below its January all-time highs. It is facing some resistance through $218 per share but with the proper push, the bulls can take it out. If that happens then they would have a shot at setting new records. The fact that this is even possible is testament to the quality of this company.

Alibaba is surely riding the Amazon coattails, but it is undoubtedly seeing its own upticks in sales while the other one hogs the headlines. The same holds true for Shopify (NASDAQ:SHOP), which actually did set new highs yesterday perhaps fueled by  the chief technology officer’s comments that they are seeing “Black-Friday-level traffic.” The same must be happening at Alibaba as its market is massive.

Moreover, the Wall Street has faith in the management team because so far they have been able to execute on plans consistently well.

Extra Boost Could Be Coming From the Cloud

We all know that Amazon dominates the cloud with its AWS division. But Alibaba is the third largest behind Microsoft (NASDAQ:MSFT) with 8% market share. With the world in quarantine and business resorting to the web for operations, demand on cloud services must be exploding. Alibaba, being a leading provider of said services, must be experiencing tremendous demand growth. We will learn more on this after the earnings report in early May.

Usually when dealing with momentum stocks, investors risk buying froth. SHOP stock for example sells at 42 times its sales, so by comparison Alibaba’s 9.5 times sales is a bargain.

Regardless, cheap is not what I look for when investing in growth stocks. They are supposed to spend a lot in order to grow a lot. For now, Wall Street won’t care much about a little froth in the stock price as long as the results are there.

Buy the Dip if It Comes in Alibaba

BABA Stock Chart
Source: Charts by TradingView

Technically I would prefer to chase Alibaba stock after it breaks out from $218 per share. The idea with momentum stocks is to buy-high-sell-higher. Even if the trade is for the long term, there is no harm in waiting out the next few ticks. Ideally it would make for a much better entry point on a dip towards $200 per share. This has been a pivotal level for almost three years.

Machines love trading levels that are this sticky.

Besides, dips serve a purpose vital to solid rallies. They shake weak hands out and transfer the shares into the hands of owners with better conviction, who will take it to the next levels.

Nicolas Chahine is the managing director of SellSpreads.com. Join his live chat room for free here. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/04/alibaba-stock-is-poised-to-set-new-highs-soon/.

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