Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Chart Of The Day: Alibaba Shares Setting Up To Slingshot Even Lower

Published 09/13/2021, 09:28 AM
Updated 09/02/2020, 02:05 AM

Much has been written recently about China’s ongoing clampdown on tech companies in general. As well, global media outlets have been following Beijing's lengthier but no less public crackdown on once high-profile entrepreneur Jack Ma and the Asian e-tail juggernaut he founded, Alibaba (NYSE:BABA).

Since last November, when Chinese regulators abruptly suspended the $37 billion IPO of Ma's Ant Group, Alibaba's affiliate company, the value of the publicly traded Alibaba has dropped to half of what it was at its October 2020 record peak.

The latest regulatory move in what some market observers see as a personal vendetta against Ma will strike another blow at both the individual and the company he founded. According to a report first published in the Financial Times, Chinese authorities intend to break up Ant’s Alipay division and force the creation of a separate, independent loan app that could end up being state owned.

As a result, Hong-Kong listed shares of Alibaba Group (HK:9988) plunged as much as 6.3% this morning, settling down 4.2% at the close of trade.

For anyone thinking to buy the dip on current fundamentals, we reiterate our warning from late last year and note that the stock's technicals aren't looking too promising either.

Alibaba Daily

The stock is on the edge of a knife. It may have escaped a death sentence today, but bulls remain on the chopping block.

The stock managed to close above the bottom of a bearish pennant. But based on its Rate of Change—an indicator that measures momentum—it’s just a matter of time before another downside breakout takes shares yet lower.

The psychological dynamic of this trading pattern is that the price equilibrium is a result of short covers and the opposing supply of short sellers. If the pattern continues to play itself out, bearish momentum will push the stock below the pattern, after the short covering is complete and supply remains.

Note: the pattern is not complete, and no sell signal is provided, yet the price closed below the pattern, demonstrating that investors are still willing to be locked into their positions at the close. This could be a bear trap, however, so traders should proceed with caution and employ appropriate filters.

Trading Strategies

Conservative traders should wait for the price to penetrate the Aug. 23 low, then rally with dip-buying amid a “return move” to retest the pattern’s resistance.

Moderate traders could be content with a full candle’s close below the pennant. They, too, could wait for a corrective rise, for a better entry, if not confirmation.

Aggressive traders would sell at will, hoping US-listed shares will continue the decline when the Wall Street session opens.

Trading Sample

  • Entry: $165
  • Stop-Loss: $180
  • Risk: $15
  • Target: $120
  • Reward: $45
  • Risk:Reward Ratio: 1:3

Latest comments

I am looking at almost youor predict price or lower, actually, HKD115 or below in near term
Interesting you expect another 25% slingshot drop in the next few days while I expect a 100% gain over the next few years. Wonder who will be right? We shall see
comment us
greatly
Thank you, Mohd!
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.