Alibaba Group Holding Limited (NYSE:BABA) investors digest the implications of the trading war between the U.S. and China

Alibaba Group Holding Limited (NYSE:BABA) investors digest the implications of the trading war between the U.S. and China

Alibaba Group Holding Limited (NYSE:BABA) investors digest the implications of the trading war between the U.S. and China

Wall Street is eagerly awaiting Alibaba’s (BABA) Thursday morning earnings, as investors digest the implications of the trading war between the U.S. and China.

The Chinese e-commerce giant has been battling the trade war, which plays a negative role in the Chinese economy, while also contributing to higher investor uncertainty and volatility.

But 5-star RBC Capital analyst Mark Mahaney remains bullish on BABA, maintaining an Outperform rating and $210 price target, which implies nearly 30% upside from current levels. 

As always, we like to give credit where credit is due. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Mahaney has yielded a yearly average return of 21% with a 62% success rate. Mahaney has earned an average return of 46.6% when recommending BABA and is ranked #59 out of 5,234 analysts.

For the fiscal first quarter, Mahaney is forecasting revenue of 111.9B RM, Adjusted EBITDA of 35.4B RMB (32% Margin), and Adjusted EPS of 11.76 RMB. Looking ahead, the top analyst believes management will reiterate FY2020 revenue growth guidance of at least 500B RMB, compare to Street estimates of 506.6B RMB.

Furthermore, Mahaney is expecting to see a 500bps decrease in gross margin to 41% (since last year), with EBITDA down 400bps to 32%. Looking at his crystal ball, Mahaney says performance will be “driven by investments in Consumer Services, New Retail, and Logistics.”

Mahaney expects Alibaba’s main revenue-generator, Core Commerce, to grow 40% since last year and make up 68% of revenue. 

Its cloud segment also continues to grow, with Mahaney expecting a rise of 76% since last year, and represents “a potentially very large $30-$40B market opportunity for Alibaba.” 

But most importantly, the analyst will be closely watching segment profit, which he believes is “important for investors to focus on in gauging the health of the organic business ex/ BABA’s recent investments.” 

All in all, Alibaba continues to grow very rapidly and has done well relative to expectations, but investors are a bit nervous right now because of US-China concerns. Should they? Probably not. Most analysts believe this is just a short-term storm that will eventually pass.

Technical Indicators

Overall, the bias in prices is: Downwards.

By the way, prices are vulnerable to a correction towards 166.40.

The projected upper bound is: 173.41.

The projected lower bound is: 155.22.

The projected closing price is: 164.31.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 21 white candles and 29 black candles for a net of 8 black candles.

A rising window occurred (where the top of the previous shadow is below the bottom of the current shadow). This usually implies a continuation of a bullish trend. There have been 7 rising windows in the last 50 candles–this makes the current rising window even more bullish.

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 67.9020. This is not an overbought or oversold reading. The last signal was a buy 4 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 46.52. 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 buy 5 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 -20. This is not a topping or bottoming area. The last signal was a buy 3 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 9 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed up 4.720 at 164.030. Volume was 7% below average (neutral) and Bollinger Bands were 43% wider than normal.

Open     High      Low     Close     Volume___
160.910 167.320 159.570 164.030 3,518,247
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 161.47 166.83 165.11
Volatility: 50 35 41
Volume: 3,436,911 3,707,231 3,761,531

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 up today (bullish) 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 0.7% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. 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 8 periods.

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