Despite strong gains, Alibaba Group Holding Limited (NYSE:BABA) is still relatively cheap

Despite strong gains, Alibaba Group Holding Limited (NYSE:BABA) is still relatively cheap

Despite strong gains, Alibaba Group Holding Limited (NYSE:BABA) is still relatively cheap

The trading in Alibaba Group (NYSE:BABA) stock since its 2014 initial public offering has been interesting. Alibaba stock basically has had only two sustained rallies.

Shares bottomed in early 2016, along with the market as a whole and zoomed higher until late 2017. BABA stock tripled over that stretch. The stock now has gained almost 50% from its late May lows and over 30% since pulling back in early October.

Other than those two moves, BABA has spent its five-plus years on the public markets trading basically sideways at best. In fact, it took this sharp recent rally for Alibaba stock to surpass mid-2018 peaks and reach a new all-time high.

At these levels, there is a case to take profits, as Josh Enomoto detailed last week.  The U.S.-China trade war has thawed, but seems far from over. Long-running worries about the Chinese economy and government persist. I’ve personally long been a skeptic toward Alibaba stock, and I’m not ready to reverse field just yet.

That said, I’ve also argued that bulls can (and do) see BABA stock very differently, with some justification. Even after the gains of the past few months, it’s hard to see why BABA bulls are going to change their minds. The 2016 rally lasted longer than skeptics believed it would. The rally that begin in 2018 may well do the same.

The Rally Can Continue

It’s possible that catalyst shows up or that Alibaba stock simply finds a way to reverse or stall out anyway. After all, the 2019 rally hasn’t had a single obvious driver. Even the trade war progress seems minimal, and U.S. and Chinese stocks gained as the dispute dragged on in the summer and fall.

But the simple way to look at Alibaba stock right now is that the status quo should hold, both in terms of the company’s growth and the external environment. At 25-times earnings in this market, this suggests the stock still could find more buyers.

We’ve seen this rally once before, and it lasted almost two years. Even though I’m not convinced BABA stock should keep gaining, I’d be far from surprised if it failed to do so through 2020 at least.

Technical Indicators

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 200.07.

The projected upper bound is: 230.19.

The projected lower bound is: 215.09.

The projected closing price is: 222.64.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white 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 4 rising windows in the last 50 candles–this makes the current rising window even more bullish.

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

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 74.6064. This is not an overbought or oversold reading. The last signal was a sell 7 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 72.78. This is where it usually tops. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 4 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 171.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. 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 6 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed up 3.780 at 221.780. Volume was 16% below average (neutral) and Bollinger Bands were 7% narrower than normal.

Open     High      Low     Close     Volume___
221.500 223.070 220.840 221.780 2,810,512
Technical Outlook 
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 216.77 198.12 178.64
Volatility: 26 24 35
Volume: 2,325,139 4,058,525 3,493,446

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 24.1% above its 200-period moving average and is in an upward trend. Volatility is low as compared to the average volatility over the last 10 periods. Our volume indicators reflect very strong flows of volume into BABA.N (bullish). Our trend forecasting oscillators are currently bullish on BABA.N and have had this outlook for the last 49 periods. Our momentum oscillator is currently indicating that BABA.N is currently in an overbought condition. The security price has set a new 14-period high while our momentum oscillator has not. This is a bearish divergence.

The following two tabs change content below.
HEFFX has become one of Asia’s leading financial services companies with interests in Publishing, Private Equity, Capital Markets, Mining, Retail, Transport and Agriculture that span every continent of the world. Our clearing partners have unprecedented experience in Equities, Options, Forex and Commodities brokering, banking, physical metals dealing, floor brokering and trading.