Investors should use the coronavirus-driven dip to buy some Alibaba Group Holding Limited (NYSE:BABA) shares

Investors should use the coronavirus-driven dip to buy some Alibaba Group Holding Limited (NYSE:BABA) shares

Investors should use the coronavirus-driven dip to buy some Alibaba Group Holding Limited (NYSE:BABA) shares

When Alibaba (NYSE:BABA) traded at an all-time high of $230 at the start of 2020, China’s e-commerce giant enjoyed nothing but good news. The U.S.-China trade war ended with phase one in place. Markets as a whole enjoyed rich valuations. And once again, investors bought up Alibaba stock to get exposure to the Chinese stock market.

But last week, sentiment shifted to the downside. Growing worries over the impact the coronavirus will have on China’s economy worsened. Though the recent dip is modest, should investors consider buying Alibaba at around the 25 times price-to-earnings ratio?

As history often shows, timing the entry point with BABA stock is nearly impossible. So, investors may look at the recent dip as an entry point in a solidly growing firm. After all, the long-term growth prospects of the company look bright.

Valuation

Investors may reasonably expect Alibaba to grow its revenue by at least 33% in the next five years. So, at a conservative discount rate of 12.5%, the stock’s fair value is $265.

On Stock Rover, Alibaba stock has a quality score of 97. But the value score is just 61, due to the price-to-earnings ratio of 25.5 times and a price-to-sales of 8.7 times. By contrast, the S&P 500 has a P/S of 2.4 times.

Technical Indicators

Overall, the bias in prices is: Upwards.

The projected upper bound is: 222.33.

The projected lower bound is: 202.88.

The projected closing price is: 212.60.

Candlesticks

A black body occurred (because prices closed lower 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 30 white candles and 20 black candles for a net of 10 white candles.

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 40.1539. This is not an overbought or oversold reading. The last signal was a buy 2 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 46.43. 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 9 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 -93. 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 6 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed up 1.790 at 212.020. Volume was 27% below average (neutral) and Bollinger Bands were 13% wider than normal.

Open     High      Low     Close     Volume___
212.500 213.970 209.570 212.020 2,562,188
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 218.17 208.04 181.06
Volatility: 35 30 36
Volume: 3,098,512 3,813,731 3,516,840

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 17.1% above 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 2 periods.

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