Alibaba Group Holding Limited (NYSE:BABA) – Be Greedy When Others Are Fearful

Alibaba Group Holding Limited (NYSE:BABA) – Be Greedy When Others Are Fearful

Alibaba Group Holding Limited (NYSE:BABA) – Be Greedy When Others Are Fearful

Global coronavirus cases just broke the 100,000 mark, and the Dow has broken down to its lowest level since the beginning of June as the market reels in fear. The markets are in panic mode, but that doesn’t mean that we should be. Economy data is still robust, with February’s unemployment rate maintaining its half-century low of 3.5% and 273,000 new jobs entering the market. Fear is dictating the market’s actions, and investors are rapidly evacuating the equity market, flying to “safer” assets like gold and treasury bonds. This could be the perfect time to start buying your favorite stocks at a discount.

From the famous words of one of the most esteemed investors in history, Warren Buffett, to be a successful investor, “simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

I like the cloud space right now, as these companies will likely be able to stay above the most substantial impacts of this new pathogen. What the markets are most concerned about is the supply shock that China’s manufacturing shutdowns have caused. This supply shock is expected to extend as global supply chains begin to shut down with the coronavirus spreading. Demand for physical goods & services is also going to be a concern if people start shutting themselves off from the outside.

Cloud-based companies will not have the lasting impacts that physical inventory companies will experience. With people working increasingly remotely in the wake of this novel virus, cloud computing may become increasingly essential.

I am not advocating to put all your money in the market right now, but below I offer a few suggestions for healthy cloud-based stocks with a bright future to keep an eye on. 

My Cloud Picks

Adobe (ADBEhas very successfully transitioned to the tech world’s golden business model, subscription-driven reoccurring-revenue. Adobe is the unmistakable leader in digital media design and marketing analytics. The company has and will continue to be the innovative frontrunner in its field with an unmatchable product offering. Adobe has become a necessity in the creative arena, as well as marketing.

This firm has driven exceptionally consistent topline growth of more than 20% annually for over 4 years, with rapidly expanding margins. ADBE is now trading at the lowest end of its 5-year forward P/E multiple range and is looking ripe for a buy. The coronavirus has provided investors who missed out on this stock’s rally a second chance to get in.

HubSpot (HUBSis a leader in cloud-based enterprise software for SMBs, providing functionality in sales, market, and service management. The company offers a similar business model to Salesforce, but HubSpot is focused on small growing businesses. The platform is more affordable and easier to implement than the complicated Salesforce system, which requires a professional to set up.

HUBS has proven its ability to demonstrate consistent topline growth while successfully expanding margins with scale. This is a young enterprise but has already acquired more than 73,400 customers in over 120 different countries.

HUBS is roughly 20% of its highs and may see a larger downside if the markets continue to fall. This company’s recent trend towards profitability makes the stock more volatile in an already fear infected market. Keep an eye on this stock but wait for the markets to settle down before putting on a position.

Alibaba (BABAis not a pureplay cloud-player but controls the cloud market in the most populous country in the world, China. Considering the coronavirus’s impacts on China, I am surprised how resilient BABA has stayed thus far. Alibaba’s immunity comes from the online nature of the business and its strong long-term potential.

Many of China’s residence are staying home to avoid the spread of the virus and are using the internet more than ever. This has its benefits for Alibaba and its many online-based subsidiaries. This is not to say that this pathogen won’t negatively impact the company, but that its impact may be less severe than its domestic cohorts.

When compared to its largest competitor Amazon, Alibaba exhibits not only wider margins, and stronger profitability, but also a more robust growth outlook. Yet BABA is valued at almost half the market capitalization as AMZN. The enterprise controls both the ecommerce and cloud space in the most populous country in the world. There is an enormous amount of potential for these shares moving forward.

Take Away

I am not a heavy buyer right now as the impacts of the global pathogen are only beginning to be priced in, but I have been buying small positions in resilient stocks like BABA and averaging down as the market continues to break.

The markets are being driven by short-term fear, while the long-term economic outlook still appears to be positive. The coronavirus has given investors a precious opportunity to rewind the market an get in on missed opportunities. The markets are beginning to look like a clearance sale, and you don’t want to miss out on this big break.

Technical Indicators

Overall, the bias in prices is: Downwards.

Note: this chart shows extraordinary price action to the downside.

The projected upper bound is: 216.41.

The projected lower bound is: 192.47.

The projected closing price is: 204.44.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.

A falling window occurred (where the bottom of the previous shadow is above the top of the current shadow). This usually implies a continuation of a bearish trend. There have been 6 falling windows in the last 50 candles–this makes the current falling window even more bearish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 66.6667. This is not an overbought or oversold reading. The last signal was a sell 1 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 41.30. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 35 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -91. This is not a topping or bottoming area. The last signal was a buy 4 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 10 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed down -6.820 at 204.640. Volume was 50% above average (neutral) and Bollinger Bands were 4% wider than normal.

Open     High      Low     Close     Volume___
206.690 206.990 201.100 204.640 5,925,852
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 208.00 216.08 185.25
Volatility: 36 35 35
Volume: 5,352,529 3,452,205 3,591,050

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

ALIBABA GRP ADR gapped down today (bearish) on normal volume. Possibility of a Runaway Gap which usually signifies a continuation of the trend. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
ALIBABA GRP ADR is currently 10.5% above its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of BABA.N at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on BABA.N and have had this outlook for the last 28 periods. The security price has set a new 14-period low while our momentum oscillator has not. This is a bullish divergence.

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