It’s been a great year to own large-cap tech stocks, right? Actually, that depends on where one looks. But if it’s in the direction of a pressured Chinese stock market and Alibaba Holdings (NYSE:BABA), an overtly bearish price chart hints that BABA stock’s greatest challenges may finally be behind it.
Let me explain.
For any investor with even a passing interest in the stock market, it’s not a secret Chinese stocks have become sacrificial pawns at the hands of domestic and foreign regulators alike. DiDi Global (NYSE:DIDI). Baidu (NASDAQ:BIDU). Bilibili (NASDAQ:BILI). Vipshop Holdings (NYSE:VIPS). They’re among some of the higher-profile casualties.
The list also includes BABA stock and a company often referred to as China’s Amazon (NASDAQ:AMZN) given its similar and broad reach from retail to the cloud, AI and more.
Ongoing anti-monopoly and data security actions taken to guard against companies not viewed as serving the Chinese state, as well as here and there threats by U.S. officials to delist China-based companies from U.S. exchanges have proven forceful headwinds to shareholder value in 2021.
Some Chinese stocks have fared better than others of course. And some names have begun to regroup on bargain-hunting investing with barometers such as the heavily-traded Invesco China Technology ETF (NYSEARCA:CQQQ) down 13% year-to-date.
Notably, Cathie Wood’s Ark Invest funds which have gained notoriety over the past year for huge momentum-style outperformance and unabashed, aggressive positioning, has begun to accumulate positions in JD.com (NASDAQ:JD), Tencent Holdings (OTCMKTS:TCEHY) and Pinduoduo (NYSE:PDD) after deeper corrections.
But the buying interest from Wood and other value-operating investors hasn’t included BABA stock.
So, what gives in BABA stock? It certainly isn’t that BABA more expensive than its peers. It’s not and early August’s earnings report delivered solid sales growth strongly hinting at a relative and absolute bargain.
Yet, shares have gotten cheaper with the stock off around 20% since the quarterly release.
The underlying issue continues to be a grudge match between China’s government and Alibaba and one which some see as the trigger behind 2021’s broader regulatory assault against the country’s tech sector.
The fact is BABA’s founder Jack Ma has remained an outspoken critic of Chinese regulators despite monetary fines and a hurtful shelved Ant Group fintech IPO. And in the rare case of a proffered olive branch, the look and smell of an insincere boilerplate language by Alibaba hasn’t helped matters.
BABA Stock Monthly Price Chart
It might be easy at this point with BABA stock off 30% in 2021 and down nearly 50% from last October’s all-time-high to be concerned. Even if that’s not you, a casual look at Alibaba’s price chart might have you worried.
With the month of August finishing Tuesday, imminent confirmation of a monthly chart breakdown of BABA’s lifetime channel support line and failure of the stock’s Covid bottom from last March are unsettling. But don’t be fooled. There is a silver lining in Alibaba’s miserable price action.
Today, Alibaba shares are oversold based on their monthly stochastics. What’s more, shares are currently in a testing position of BABA’s lower Bollinger Band and 62% retracement level dating back to 2015’s all-time-low. And again, this deeper value situation on the price chart has aligned itself with fundamentals which are also historically cheap.
Bottom line and for investors that similarly see the upside of owning today’s fairly well-played out bearish cycle in Alibaba stock, one flexible strategy which looks good off and on the price chart is the October $170/$185 collar combination.
On the date of publication, Chris Tyler holds positions (either directly or indirectly) in Ark Innovation ETF (ARKK) and Ark Genomic Revolution ETF (ARKG). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.