In spite of the tensions between the United States and China, Wall Street has embraced Alibaba (NYSE:BABA) as one of its own. In fact, Alibaba stock is up 455% from its 2015-era lows.
Owning BABA for the long term has rewarded its investors handsomely. Since it continues its winning ways on Wall Street, investors should buy the dip, especially if it comes from political shenanigans.
Year-to-date it BABA is up 46%, 40% better than the NASDAQ. The buyers are definitely in charge. This by definition makes every significant dip an opportunity to buy. Those have been few and far between, even in a year as turbulent as 2020. A stock that moves this fast is difficult to trade because it never gives a clear point of entry.
Ideally, inside a trend this healthy, it’s best to wait for a dip towards $290 per share. The better entry point would be $30 below that, so wait to pounce from any correction from the election reactions. Current owners of the stock can stay long because it will eventually resume its winning ways.
Staying Long Alibaba Stock Makes Sense
The options market offers temporary protection for those really worried about civil unrest into December. Fundamentally, in spite of the rally, Alibaba stock is not expensive. It has a 31 price-to-earnings ratio and a price-to-sales of 10. This is completely in line with U.S. mega tech companies.
Should Wall Street have a market-wide tizzy, this name doesn’t carry the extraordinary risk of Zoom (NASDAQ:ZM) or Shopify (NYSE:SHOP). The steeper the rally, the harder to fall and this is especially true when there is a lot of hope priced into the stock.
Alibaba has earned the credit that it gets on Wall Street, so it doesn’t have to worry about dashed hopes. However, we’ve already established that this is a momentum stock, so it will move fast. Investors need to do their homework and prepare for the entry points they want. When everyone else is panicking, successful traders are picking their next positions to buy. Alibaba stock should be on the shopping lists for any investor.
There Are Several Support Zones
Technically, the weekly chart suggests that the two biggest pivot points are at $260 and $230 per share. I am conservative in nature, therefore I would pick the lower one. Investors can wait patiently for this to happen. Or they can expedite things and sell the December $250 put and collect almost $4 per contract today. If the 20% correction comes then they could own it there with a breakeven point of $246 per share. If the stock holds above $250 then they created income without any out-of-pocket expense. That’s a win-win situation.
The important thing is to keep calm under unusual conditions up or down. Even the small correction that we had in September brought a nice opportunity in Alibaba stock.
There are other factors like the U.S. government’s crackdown on Chinese stocks. Regulators intend to stop situations like what happened with Luckin Coffee (OTCMKTS:LKNCY). Alibaba is not a target of this, because it’s been assimilated as one of Wall Street’s own. Nevertheless, the next few weeks are likely to be very volatile as the headlines come in fast and furious.
Why Charts Are Important Especially During Headline Periods
Spending a few minutes strategizing on the charts could save investors a ton of headaches. Usually the contentious levels and their potential outcomes are easy to spot. Otherwise they are doomed to react in panic, then fall victim to fear of missing out.
Yes, it works on the way up and down and neither outcomes are good. The only way to avoid disaster is to be ready for it and acknowledge both scenarios ahead of time. If Wall Street panics in November I expect Alibaba stock would be an opportunity for next year.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.