What a horrendous ride it’s been for Alibaba (NYSE:BABA). At this month’s low, BABA stock was down 56.5% from the highs made in October 2020. Over the past 11 months, Alibaba shares have fallen in eight of them.
It’s been a difficult ride, particularly with the Nasdaq and S&P 500 grinding to new highs (before the latest dip). Various mega-cap tech stocks have hit new all-time high as well. Others, like Amazon (NASDAQ:AMZN) have stagnated.
However, even Amazon’s year-to-date gain of 1.75% vastly outshines the 25% drop we’ve seen in Alibaba.
That said, could the bottom be in? After hitting a low of $138.43 on Oct. 4, BABA stock has been on fire. Shares ripped off five straight days of gains, racking up a 22% gain in that timeframe. It’s now working on its third straight week of gains.
Let’s look at the charts first.
Trading BABA Stock
That massive spike from the $138 lows is impressive. It didn’t come on massive volume, but it came on above-average volume. Notably, it also came with a bit of divergence on the Williams %R reading. Both of these observations are clear at the bottom of the chart.
However, price speaks the loudest and while bulls are fishing for a bottom in BABA stock, where the rally came to an end has to be a concern.
After reclaiming the 10-day and 21-day moving averages, Alibaba rallied right to the 50-day moving average, but reversed from the session high and closed at its session low. That was on Oct. 11. However, the stock was also rejected by the $169.95 level.
Why does that matter? That mark was the low from the coronavirus selloff in the first quarter of 2020.
Given that the 50-day moving average has been resistance for several quarters now and the importance of the Covid lows, bulls need to see BABA stock clear these marks. It will solidify a bottom that much more if that’s the case.
So far now, that’s the case. After chopping below $170 for six sessions, BABA stock burst over this mark, sending it to the next resistance area near $180. If it can continue higher, the $200 level and the 200-week moving average is on the table.
If we see that scenario play out, it will be important to see recent resistance levels—like the 50-day and $170 mark—turn into support on future pullbacks. Further, I would love to see BABA stock find the 10-day and 21-day moving averages as support in the short term. That would be constructive price action for the stock.
If they fail, there is a gap-fill level down near $145. If it’s tested, there is a chance the low near $138.50 remains vulnerable.
Breaking Down Alibaba
Here’s the thing about Alibaba: It has a great business, you just wouldn’t know it by the way the stock price acts.
The company is riding a secular growth trend with e-commerce. But more than that, it’s dominating in one of the largest markets on earth. China’s population stands at more than 1.4 billion people. Its middle class is larger than the entire U.S. population.
Alibaba dominates the online sales market with Alibaba.com, Tmall.com and Taobao.com. Tmall is the third-ranked website in the world, while Taobao is the eighth most popular site. For comparison, Amazon.com is the 11th most popular site in the world.
That alone generates incredible value. But it’s also generating solid growth. Analysts expect 27.5% revenue growth this year and 20% growth next year. In 2024, analysts expect almost 19% growth. Clearly, the growth is there, even though investors continue to sell this one lower and lower.
The problem? China. Just as “China” was (and still is to a degree) a positive catalyst, the recent regulatory headaches in the country have become a real negative catalyst for Alibaba lately. Chinese regulators have shown that they don’t care who or what is in their way and they will run over anything that they perceive to be a threat. If Alibaba is in the crosshairs, BABA stock faces a risk.
The hope is that eventually that risk fades, but it’s not a guarantee—particularly in the short term.
Bottom Line on BABA Stock
There are still hurdles to clear on the technical side, but the picture looks much better. Let’s see if BABA stock can make some improvements on this side of the equation, while hopefully seeing some improvements on the fundamental side as well.
There are clearly risks with this name, but on the plus side, the levels are clearly marked on the chart. A close below the current low does not bode well for longs.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.