The price action in recent weeks hasn’t been entirely nice to Alibaba (NYSE:BABA) shareholders. But rather than see BABA stock as bad or naughty as charged, it’s time to look appreciatively toward good tidings to come.
Let’s look at some of the company’s coal-like drags, a couple of under-appreciated gifts, the more-joyful Alibaba stock chart now taking shape and how investors can position more smartly for the future.
It’s been a tough several weeks for BABA’s stock holders. Last week’s lows were off 21% from the shares’ late October all-time-high. And for what it’s worth, the unruly, market-defying behavior hasn’t been without cause either.
Antitrust Angst Roils BABA Stock
Investors initially sent Alibaba shares scurrying and down by 8% back in early November after the Shanghai Stock Exchange announced it was suspending the initial public offering of Ant Group. The fintech founded by Alibaba’s Jack Ma was priced to become the world’s largest IPO at a valuation in excess of $300 billion. Trouble, right? Not so fast.
An overall stronger-than-forecast earnings release for its second quarter and record-breaking Singles Day sales of $56 billion acted as a call to arms from investors. Sadly, those bargain-hunting efforts in BABA were quickly derailed by more bearish news in the first half of November.
Proposed anti-trust regulations sounding like a page taken from U.S. investigations into Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) and other trillion-dollar club tech stocks, took shares sharply lower over two trading days before trending further down to stock prices from August. Concerns of actions against Alibaba by China’s government continued to weigh on BABA into December, but now Alibaba has other headaches. too.
On Dec. 18, POTUS signed legislation that would give the boot to U.S.-listed foreign companies that fail to follow U.S. auditing standards for three years in a row. “The Holding Foreign Companies Accountable Act” wasn’t aimed specifically at BABA or Chinese stocks for that matter. But given the Administration’s war with Beijing, as well as Alibaba’s massive valuation and business tendrils, investors have reacted to the legislation and pressured shares as much as 4% the past two sessions.
Alibaba Stock Weekly Price Chart
Source: Charts by TradingView
Bad press and investor concern, like what BABA has been going through, generally tends to sort itself out. Rather than judge, let’s just say “it is what it is.” And right now, “what it is” is all the worrying of the last couple months taking on the shape of a decent-looking and playable low in shares.
Technically and as the weekly chart of Alibaba stock above reveals, a double-bottom has developed over the last six weeks. With the fairly stiff correction forming in a Fibonacci-backed support area and stochastics in oversold territory, there’s reasons to believe a meaningful, intermediate-term bottom is nearby.
Currently, a pattern hold looks buyable above last week’s doji high of $264.90. The entry could draw in additional buyers as this trigger results in BABA crossing back above an uptrend formed off its Covid-19 low. That should provide more fuel for the double-bottom to act as a solid platform for appreciably higher prices.
Improving The Odds
I’d caveat this buying strategy and require stochastics to form a bullish crossover. The extra layer of confirmation could mean a slightly steeper entry price. However, it should serve to reinforce the chances for a meaningful low in BABA.
Lastly and to further improve those odds, I’d recommend a February $250 / $300 Alibaba stock collar.
To be fair, this fully hedged position is a slightly pricier gift given its structure. The good news? It will be less expensive if a buy signal in shares emerges. This spread should continue to give back to investors long after the upcoming holiday, past early February’s earnings report and come in handy if shares prove menacingly more naughty than nice.
On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
