Alibaba Group Holding Limited (NYSE:BABA) Seen Rising 45% After Pullback

Alibaba Group Holding Limited (NYSE:BABA) Seen Rising 45% After Pullback

Alibaba Group Holding Limited (NYSE:BABA) Seen Rising 45% After Pullback

It’s that time of the year again. Earnings season is just about to move into full swing, and some big tech names will report in just a few weeks. One company that attract lots of investor attention when it reports earnings is Chinese e-commerce giant Alibaba (NYSE:BABA).

In an earnings preview note released today, Wells Fargo analyst Ken Sena walked through several model adjustments, including a more difficult comparison for BABA’s customer management revenue, additional costs associated with Youku’s World Cup broadcasting rights, only a half quarter benefit of Ele.me, as well as a one-time step-up in stock compensation related to Ant Financial’s recent financing and RMB depreciation.

As result, Sena is modestly trimming his 1Q19 and FY2019 estimates:

FY1Q19 – Total revenue decreased by 3.6% to ¥80.1 billion or $12.0 billion – approximately 2% lower than consensus. EPS reduced to ¥8.82 or $1.32 (vs. prior $1.40).

FY2019 – Total revenue decreased by 1% to ¥397.8bn/$59.7bn, and EPS lowered to ¥43.34 or $6.50 (vs. prior $6.66).

Reasons for the negative estimate revisions include:

Tough Comparison for Customer Management Revenue – BABA initiated an algorithm change in FY2Q17 (September, 2016), which benefited its FY1Q18 customer management revenue growth of 65.1% y/y. As result, for FY1Q19, BABA is facing a difficult comparison.

Youku’s World Cup Costs – The broadcast license fees, bandwidth costs, and marketing expenses are estimated to be approximately ¥2.2bn/$332.1mm, split 70-30 between 1Q and 2Q18.

Net net, Sena reiterates an Outperform rating on Alibaba stock, while trimming the price target from $250 to $240, which implies a 28% upside from current levels.

Overall, the bias in prices is: Downwards.

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

The projected upper bound is: 197.50.

The projected lower bound is: 177.70.

The projected closing price is: 187.60.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 25 white candles and 25 black 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. The two candles preceding the falling window were black, which makes this pattern even more bearish.

Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is 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 67.9632. This is not an overbought or oversold reading. The last signal was a sell 0 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 40.39. 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 23 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 -37. This is not a topping or bottoming area. The last signal was a buy 5 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 19 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed down -5.130 at 187.420. Volume was 33% below average (neutral) and Bollinger Bands were 41% wider than normal.

Open High Low Close Volume___
188.530 190.040 187.420 187.420 2,514,926

Technical Outlook
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish

Moving Averages: 10-period 50-period 200-period
Close: 188.19 196.84 185.73
Volatility: 35 32 38
Volume: 3,321,251 3,940,217 3,917,178

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 0.9% above its 200-period moving average and is in an downward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume out of BABA.N (mildly bearish). Our trend forecasting oscillators are currently bearish on BABA.N and have had this outlook for the last 12 periods.

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