Alibaba Breaches Near-Term Resistance: How High Could The Stock Go?

Alibaba Group Holding Limited BABA shares are on a roll Thursday, with the catalyst being the Chinese government's positive take on the talks between its diplomat Yang Jiechi and White House National Security Adviser Jake Sullivan in Switzerland earlier this week.

Alibaba's Regulatory Woes: Alibaba's shares, which were on a broader downward trajectory since they hit a record high of $319.32 on Oct. 27, are seeing a resurgence Thursday.

The Chinese e-commerce giant's travails began late last year when Chinese regulators began cracking down on the sprawling growth of the conglomerate. Regulators clamped down on Alibaba's affiliate Ant Financial, a fintech company. Ant had to shelve its ambitious initial public offering plans, and it was also required to organize as a bank holding company, bringing it under stricter disclosure norms.

To add to the woes, Alibaba was accused of abusing its dominant position in the e-commerce market and levied a fine of $2.8 billion.

Regulatory troubles continued into 2021 and this time the company suffered amid a broader clampdown on high-profile tech names, including Tencent Holdings Limited TCEHY.

Related Link: Alibaba Opens Up Walled Garden To Allow Rival Tencent's Payment System In Some Apps

Alibaba's Stock Goes Gangbusters: Thursday, Alibaba shares opened higher at $150.75, up from the previous close of $144.10, and are seen solidly higher.

The stock closed below the $150 level on Sept. 29 and retreated further to an intraday low of $138.43 Monday before ending the day at a multiyear closing low of $139.63.

Thursday's rally has taken the stock past near-term resistance areas around $145 and $151. It is now approaching another resistance around $159.50.

A break above the level could take the stock to the next resistance around the $168 area, which it failed to clear in early September. This level has offered support on a few instances in September 2019 and April 2018.

With Thursday's move, the relative strength index has moved to a more neutral zone of 51, suggesting the stock is neither oversold nor overbought.

Does Alibaba Rally Have Legs? Given that the stock has been volatile of late, gyrating in reaction to regulatory headlines, it is tough to predict if the stock will see a sustained uptrend.

The next key catalyst could be the company's second-quarter results, which are likely to be released in early November. Expectations are muted given worsening consumer sentiment and slowing retail sales in China.

Analysts, on average, estimate the company will report earnings per share of $1.97, down from $2.78 in the year-ago period. Revenues are estimated at $31.98 billion.

Even if the company manages to outperform relative to expectations in the quarter, the shares have to contend with external headlines, especially on the regulatory front.

BABA Price Action: At last check, Alibaba shares were rallying 9.76% to $158.16.

Related Link: What To Expect When Alibaba Reports Its Q2 Results