You Ask, We Analyze: What's Next For Alibaba Stock?

On Sunday evening, Benzinga asked its followers on Twitter which stocks they’re focusing on for the upcoming week. From the replies, Benzinga selected one ticker for technical analysis: @ScarlettJDN and @southbayseller are both watching Alibaba Group Holding Ltd – ADR BABA this week.

Alibaba traders and investors may want to check out two news items that were published over the weekend:

• Benzinga reported an institution bought the Alibaba dip and completed a block trade of $611.71 worth of common shares just before after-hours trading closed on Friday.
• On CNBC’s “Options Action,” Mike Khouw said he would only play the Alibaba bounce through options and would use a call spread or call spread risk reversal.

The Alibaba Chart: On Friday Alibaba slammed into a support level at the $155.50 mark and bounced, which indicated the support area, created in 2019, is still a key level. The stock hit the level on extremely high volume.

75.94 million Alibaba shares changed hands compared to the 10-day average of 41.55 million. This indicates there was a battle between the bulls and the bears because despite almost double the level of volume Alibaba closed the day down 1.67%, which is minor compared to the stock’s recent price history.

Alibaba has four gaps left above. The closest gap is between $167.69 and $172.06 which was left behind on Aug. 19 but there are three higher gaps near the $180, $194 and $212 levels. Gaps fill 90% of the time so it is likely Alibaba will rise up to trade into each range eventually.

Alibaba’s relative strength index (RSI) is gasping for air at only 20%. An RSI below 30% is considered oversold for technical traders and eventually, the RSI will need to correct back above 30%. When Alibaba’s RSI reached a low of 24% in December 2020 the stock bounced almost 30% over the following two months.

Alibaba is trading below the eight-day and 21-day exponential moving averages (EMAs) with the eight-day EMA trending below the 21-day, both of which are bearish indicators. The stock is also trading below the 200-day simple moving average which indicates overall sentiment is bearish.

• Bulls want to see low volume to indicate Alibaba’s stock has run out of sellers and then for big bullish volume to come in and drive the stock up. This could indicate Alibaba has found a bottom and will reverse course. There is resistance above at $170 and $179.
• Bears want to see continued big bearish volume drive Alibaba down below the key support area at $155. If the stock loses the level a support it could fall toward $147.95.