The long-term case for BABA stock is becoming questionable as Alibaba Group Holding Limited (NYSE:BABA) Cloud faces challenges

The long-term case for BABA stock is becoming questionable as Alibaba Group Holding Limited (NYSE:BABA) Cloud faces challenges

The long-term case for BABA stock is becoming questionable as Alibaba Group Holding Limited (NYSE:BABA) Cloud faces challenges

In the past few quarters, Alibaba (NYSE:BABA) has shown good growth numbers from its cloud segment. In the recent quarter, Alibaba reported $962 million of revenue in cloud computing with year-on-year growth of 84%. This is a highly stable business with the potential for good margins as shown by Amazon’s (NASDAQ: AMZN) AWS. The impact on BABA stock is also quite significant.

Hence, Alibaba’s management has announced its intention of focusing on the cloud to drive future growth. Alibaba CEO, Daniel Zhang, has also mentioned that cloud would be the main business of the company in the future.

But due to the trade tensions and the negative impact of the Huawei fiasco, we could see additional scrutiny on Alibaba’s cloud expansion in several international regions. Financial Review has recently mentioned the security challenges faced by Alibaba in its cloud push in Australia. Similar issues will arise in Europe, Canada, India and other regions.

Alibaba Cloud could face security concerns similar to Huawei as it expands in international regions. The current U.S. administration has put pressure on allies to ensure that sensitive national infrastructure does not use Chinese technology. This will limit the usage of Alibaba Cloud in many areas. It also negatively impacts the brand image of Alibaba Cloud. Corporate clients who are risk averse would rather pay a premium to get AWS or other cloud providers instead of using Alibaba Cloud.

A long-term trend toward poor reception for Alibaba Cloud will limit the revenue growth of this segment in international regions. It will also force BABA into giving bigger discounts to lure clients which should reduce the margin expansion within the cloud segment. The cloud segment plays a vital role in the bullish thesis for BABA stock. Hence, it would be important to see how its management deals with any additional security concerns regarding its cloud business.

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 168.10.

The projected upper bound is: 191.64.

The projected lower bound is: 171.43.

The projected closing price is: 181.53.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 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 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 64.6063. 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 59.24. 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 5 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 -18. This is not a topping or bottoming area. The last signal was a sell 6 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 4 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed up 0.070 at 180.700. Volume was 47% below average (neutral) and Bollinger Bands were 1% narrower than normal.

Open High Low Close Volume___
180.330 182.530 179.290 180.700 2,057,072

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

Moving Averages: 10-period 50-period 200-period
Close: 181.74 164.76 168.00
Volatility: 33 41 44
Volume: 2,855,589 3,189,705 4,182,109

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 7.6% above its 200-period moving average and is in an upward trend. Volatility is 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 40 periods.

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