The longer term outlook of Alibaba Group Holding Limited (NYSE:BABA) stock remains positive

The longer term outlook of Alibaba Group Holding Limited (NYSE:BABA) stock remains positive

The longer term outlook of Alibaba Group Holding Limited (NYSE:BABA) stock remains positive

Shares of Alibaba (NYSE:BABA) have sunk in May amid escalating trade tensions between the U.S. and China. Specifically, ever since May 5 when U.S. President Donald Trump fired off his now-infamous tweet in which he threatened to raise tariffs on China, BABA stock has shed more than 20% of its value.

This recent 20% decline in BABA stock price has been completely caused by rising trade tensions between the U.S. and China. Prior to the May 5 tweet, BABA stock price was up more than 40% year-to-date amid improving China economic conditions, and Alibaba stock was on a seemingly unstoppable track towards $200. Now, after the tweet, it seems like BABA stock is destined to give back all of its 2019 gains.

There is merit behind the large decline of BABA stock. As goes the China consumer economy, so goes Alibaba. But the bigger the trade war gets, the less confident the Chinese consumer gets, the less they spend, and the lower Alibaba’s growth rates will be. BABA stock price will fall in tandem with Chinese consumer spending.

Having said that, this bear thesis on Alibaba stock ignores two important factors: China is still growing very quickly, and Alibaba is still growing very rapidly. China’s consumption growth will slow because of the trade war. But consumer spending will continue to increase at a very healthy rate. Meanwhile, Alibaba will continue to innovate relentlessly in an effort to expand its share of rapidly growing consumer purchasing in China and Asia. Thus, despite the trade war, Alibaba looks poised to continue to grow quickly.

That’s why research firm Stifel is recommending that investors buy Alibaba stock in the wake of its dip on trade-war worries. I agree with that call. BABA stock has dropped tremendously  on near-term concerns that aren’t very important, since the company remains well-positioned to grow quickly. Buying a non-cyclical winner on near-term weakness usually turns out to be a winning strategy.

Overall, the bias in prices is: Downwards.

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

By the way, prices are vulnerable to a correction towards 170.79.

The projected upper bound is: 161.93.

The projected lower bound is: 141.86.

The projected closing price is: 151.89.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 27 white candles and 23 black candles for a net of 4 white candles.

Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is bearish.

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 11.0829. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a buy 12 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 26.43. This is where it usually bottoms. 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 buy 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 -110.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a buy 9 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 15 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed down -2.330 at 152.480. Volume was 64% above average (neutral) and Bollinger Bands were 135% wider than normal.

Open High Low Close Volume___
154.000 154.380 150.710 152.480 5,449,427

Technical Outlook
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish

Moving Averages: 10-period 50-period 200-period
Close: 162.39 179.11 164.09
Volatility: 40 36 44
Volume: 6,104,279 3,550,063 4,102,779

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 7.1% below 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 moderate flows of volume out of BABA.N (mildly bearish). Our trend forecasting oscillators are currently bearish on BABA.N and have had this outlook for the last 13 periods. Our momentum oscillator is currently indicating that BABA.N is currently in an oversold condition.

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