The recent weakness of Alibaba Group Holding Limited (NYSE:BABA) stock is a buying opportunity

The recent weakness of Alibaba Group Holding Limited (NYSE:BABA) stock is a buying opportunity

The recent weakness of Alibaba Group Holding Limited (NYSE:BABA) stock is a buying opportunity

The last three months have understandably been tough for Alibaba (NYSE: BABA) stock. America’s trade war with China has spooked investors. Alibaba is one of the largest and most visible Chinese companies, so the decline of Alibaba stock is entirely logical.

Surprisingly, despite a 17% selloff in the past three months, BABA stock price is still up 9.4% overall year-to-date. That performance is roughly in-line with the overall S&P 500.

There are three primary issues driving BABA stock price lower in recent weeks. All three of them are temporary and have created an excellent, long-term buying opportunity.

Altaba Is Dumping Alibaba Stock

Potentially the biggest bearish catalyst for BABA stock in the past two months has nothing to do with the trade war. In early April, Altaba (NASDAQ: AABA) announced it planned to liquidate its holdings of Alibaba stock. Altaba is the company that remained after Verizon (NYSE: VZ) purchased Yahoo’s internet business back in 2017. The holding company currently has an 11% ownership interest in Alibaba, so one of the largest holders of BABA stock is looking to sell its shares.

Altaba began selling its BABA stock on May 15. As of the end of the first quarter, Altaba held 283.3 million shares of Alibaba stock. Presumably, the market will need to digest at least the vast majority of these shares in coming weeks.

Even the best stock in the world would struggle to rise as tens of millions shares of it were being dumped into the market on a weekly basis. However, as Stifel analyst Scott Devitt noted, Altaba has absolutely nothing to do with Alibaba’s business.

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 166.96.

The projected upper bound is: 163.77.

The projected lower bound is: 143.65.

The projected closing price is: 153.71.

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 27 white candles and 23 black candles for a net of 4 white candles.

Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.

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 35.3094. 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 33.70. This is not a topping or bottoming area. However, the RSI just crossed above 30 from a bottoming formation. This is a bullish sign. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 0 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 -56. This is not a topping or bottoming area. The last signal was a buy 1 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 19 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed up 4.240 at 154.150. Volume was 18% above average (neutral) and Bollinger Bands were 99% wider than normal.

Open High Low Close Volume___
151.600 155.190 150.660 154.150 3,928,546

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

Moving Averages: 10-period 50-period 200-period
Close: 154.49 176.77 163.62
Volatility: 31 36 44
Volume: 5,610,893 3,670,078 4,069,769

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 5.8% 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 17 periods.

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