Alibaba Group Holding Limited (NYSE:BABA) Stock Has a Buying Opportunity Due to the Coronavirus

Alibaba Group Holding Limited (NYSE:BABA) Stock Has a Buying Opportunity Due to the Coronavirus

Alibaba (NYSE:BABA) — often referred to as the “Amazon (NASDAQ:AMZN) of China” — has been feeling the impact of the coronavirus from China. Since closing at an all-time high of $230.48 on Jan. 13, Alibaba stock has been up and down, but the general direction has been a retreat from that record price.

At its current price around $211, though, BABA stock has now slipped about 8.5%. Does the pullback represent a buying opportunity? Or, is the Chinese tech giant facing long-term challenges that might see its shares drop further?

Alibaba Stock Was on a Tear

Alibaba gets that “Amazon of China” nickname for good reason. Like Amazon, the company is focused on multiple lines of business. In BABA’s case that largely mirrors Amazon: e-commerce, cloud computing, digital media and entertainment. 

In its latest quarterly earnings report, BABA beat estimates on earnings and revenue. Its core commerce business saw 38% year-over-year revenue growth, while cloud computing revenue was up 62%.

hose results aren’t an anomaly. Rapid, consistent growth has pushed the value of Alibaba stock up by 102% over the past three years. In the 12 months culminating with its January 13 high, BABA posted 15% growth.

And Then, Coronavirus Hit

The coronavirus has wreaked havoc with markets in general. Feb. 24 saw stocks take a big hit on fears the virus was spreading beyond China. The Dow Jones Industrial Average dropped 3.5%, the Nasdaq Composite fell 3.7% and the S&P 500 was off by 3.3%. Meanwhile, Alibaba stock fell as well, losing 3% on the day.

As a company based in China that relies heavily on Chinese businesses and consumers, Alibaba is exposed to further damage should the coronavirus outbreak in that country worsen. When workers can’t get to their jobs, output and delivery slumps. When consumers are in lockdown mode, they cut back on buying extras.

There may be an initial surge in online shopping as consumers bunker down. However, stock shortages and delivery restrictions inevitably come into play.

In its earnings call, Alibaba issued a warning about the impact to its business from the coronavirus. CEO Daniel Zhang told analysts:

“It will present near-term challenges to Alibaba’s businesses across the board.”

Bottom Line on Alibaba Stock

There is no doubt that the coronavirus has hit Alibaba. Depending on whether the outbreak ends up being contained or grows worse, BABA has the potential to be volatile through 2020. The company’s stock has taken a 9% hit so far since its January highs, with around 500 million Chinese citizens on lockdown. Should the coronavirus spread resulting in further measures, that is going to bring e-commerce to a halt in the country — and Alibaba will obviously feel that impact.

In the long term, though, the outlook for Alibaba stock is almost universally positive. Among 57 investment analysts, 51 rate the stock as a buy and four have it as outperform.

Additionally, a 2018 report by Citron Research noted that Amazon generated 40-50% of U.S. online sales at that time, while Alibaba claimed 80% of Chinese online sales. In addition, Alibaba owns 33% of ANT Financial, the world leader in mobile payments. And, like Amazon, BABA is a leader in AI and cloud computing.

In other words, Alibaba has all the pieces in place for continued large-scale growth in the world’s largest economy once the coronavirus has run its course. With a market capitalization just over half of Amazon’s, that leaves plenty of upside potential for BABA.

Technical Indicators

Overall, the bias in prices is: Sideways.

The projected upper bound is: 220.10.

The projected lower bound is: 197.55.

The projected closing price is: 208.82.

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 28 white candles and 22 black candles for a net of 6 white candles.

A long upper shadow occurred. This is typically a bearish signal (particularly when it occurs near a high price level, at resistance level, or when the security is overbought).

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 20.9052. 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 42.63. 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 28 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 -98. This is not a topping or bottoming area. The last signal was a buy 0 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 3 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed up 3.130 at 208.740. Volume was 58% above average (neutral) and Bollinger Bands were 2% wider than normal.

Open     High      Low     Close     Volume___
207.210 213.080 207.210 208.740 5,772,680
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 215.81 216.23 183.91
Volatility: 35 33 36
Volume: 3,486,477 3,330,743 3,571,204

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 is currently 13.5% 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 21 periods.

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