Alibaba Group Holding Limited (NYSE:BABA) stock rallies, investors may be ignoring key risks

Alibaba Group Holding Limited (NYSE:BABA) stock rallies, investors may be ignoring key risks

Alibaba Group Holding Limited (NYSE:BABA) stock rallies, investors may be ignoring key risks

As I’ve written before, Alibaba (NYSE:BABA) is one of the more interesting stocks in the market. To bulls, the story is almost self-evident. BABA stock offers exposure to the enormous and still fast-growing Chinese market. And even with a 34% rally year-to-date, Alibaba stock isn’t particularly expensive.

To bears, the risks are equally obvious. BABA shares don’t include actual ownership of the company. As I noted earlier this year, the VIE (variable interest entity) structure may be against Chinese law.

While China’s population is huge and Alibaba’s growth impressive, the company still operates in a nominally Communist country under a single-party government. Add in long-running accounting questions and for some investors, Alibaba stock is a firm “avoid.”

I’ve generally leaned toward the skeptical side when it comes to Alibaba stock, for instance calling a top in BABA back in early December. That call was prescient in the near term, but since then Alibaba stock has reclaimed those levels and then some. After reaching a six-month high last week, however, the near-term outlook again looks questionable.

The risks here clearly are rising which could lead BABA to again turn downward.

A New CEO
On this site last month, Will Healy made an interesting point about the CEO change at Alibaba. Founder and long-time CEO Jack Ma is leaving in September. And as Healy pointed out, conglomerates like Alibaba tend to struggle after management changes.

Healy pointed to General Electric (NYSE:GE) since the departure of Jack Welch. And while, in retrospect, some of GE’s current problems likely can be traced back to Welch’s decisions (notably the mess at GE Capital), it’s an interesting analogy.

Alibaba truly is a conglomerate at this point, as it expands into cloud computing, entertainment, and other areas. New CEO Daniel Zhang will have quite a few proverbial balls in the air when he takes over. Zhang will have to be up to the task.

Overall, the bias in prices is: Upwards.

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

By the way, prices are vulnerable to a correction towards 167.83.

The projected upper bound is: 191.36.

The projected lower bound is: 171.16.

The projected closing price is: 181.26.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 29 white candles and 21 black candles for a net of 8 white 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 28.3661. This is not an overbought or oversold reading. The last signal was a buy 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 58.90. 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 3 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 -4. This is not a topping or bottoming area. The last signal was a sell 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 2 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed up 5.380 at 180.410. Volume was 6% below average (neutral) and Bollinger Bands were 8% wider than normal.

Open High Low Close Volume___
178.000 181.710 177.760 180.410 3,746,469

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

Moving Averages: 10-period 50-period 200-period
Close: 182.42 163.08 168.17
Volatility: 34 41 44
Volume: 3,054,090 3,208,717 4,199,229

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 7.3% above its 200-period moving average and is in an upward trend. Volatility is relatively normal 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 bullish on BABA.N and have had this outlook for the last 38 periods.

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