It was a banner year for stocks based on some of the market’s more enduring barometers. But it was hardly ubiquitous as bearish Alibaba (NYSE:BABA) stock can attest to.
First, let’s take a closer look at what has driven BABA stock into bearish territory. From there, I’ll offer a risk-adjusted determination for BABA investors aligned with those findings.
A popularized saying from CNBC’s James Cramer offers camera-friendly words of encouragement that investors can be certain a bull market — somewhere — is always ready to be bought into.
In 2021 there was certainly no shortage of proof.
Understanding the Pain in BABA Stock
From Apple (NASDAQ:AAPL) to Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) a new Roaring ‘20s era reasserted itself for a second straight year. Sensational gains and record highs in the S&P 500’s most prolific stocks, far removed from the market’s Covid-related March 2020 bottom, were the end result.
Yet even in the most seemingly bullish of environments, the 2021 performance of BABA stock is rock-solid evidence that there’s always a market rife with bearish price action under the surface.
The China-based tech giant, whose diversified and powerful business tendrils aren’t unlike those of U.S.-based Amazon (NASDAQ:AMZN), saw its shares cut nearly in half last year. As a result, its valuation sank from an October 2020 peak of $842 billion to $322 billion.
The bearish cycle also put Alibaba shares back at prices last seen in 2017. BABA found itself in a much deeper hole than the one universally dug during the onset of Covid-19.
That unseemly benchmark was broken when shares fetched roughly 30% more than they did to close out 2021.
Sure, if misery loves company, there was plenty to go around in Chinese stocks this past year. Large-cap tech peers Tencent (OTCMKTS:TCEHY), JD.com (NASDAQ:JD), DiDi Global (NYSE:DIDI) and many others also dropped like hot potatoes as investors lost their nerves over geopolitical delisting threats and ongoing national security scrutiny by Chinese authorities.
Of course, BABA did come under more pressure than most Chinese stocks in 2021 on the back of Alibaba founder Jack Ma’s very public and disrespectful dialogue against the powers that be.
But could Alibaba’s days as a troubled investment possibly be behind it? The headlines certainly won’t support it. However, if we’re to read the monthly price chart instead of the financial media, the case against BABA stock may soon be dismissed.
A Closer Look at Alibaba’s Monthly Price Chart
Source: Charts by TradingView
As noted, there’s always a bull market somewhere. There are stocks, like BABA that insist even the biggest and best at what they do can fall victim to bearish cycles.
It’s also true that new phases begin all the time.
And today Alibaba shares, despite the continued publicized dangers of owning them, are likely much closer to a longer-term bullish period of gains.
BABA stock is up nearly 3% in Wednesday’s session. It’s bucking broader market weakness in the likes of AAPL, MSFT, GOOGL and many of this past year’s largest and most dearly held stocks.
One day doesn’t make a trend though, right? Maybe.
Regardless, the gains in BABA are fast improving the chance for a meaningful bottom to take hold.
With nary a story making the argument for today’s buying, December’s hammer candlestick formed around BABA’s lifetime 76% Fibonacci level. The stock’s initial monthly chart pattern breakout is building credibility for a new bullish cycle.
Investors would be hard-pressed to find a cheaper-looking tech giant of Alibaba’s caliber on paper. As such, my advice here is don’t live in fear of the bearish “what if’s?” and ignore today’s buying opportunity.
At the end of the day, you shouldn’t dismiss BABA’s existential threats. But a nearby hammer confirmation and out-of-the-money, intermediate-term bull call spread can greatly help with minimizing downside exposure. That’s all while smartly leveraging a day when Alibaba is no longer Public Enemy No. 1.
On the date of publication, Chris Tyler 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.
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.
