Trading Strategies For Alibaba Stock Following Q4 Earnings Beat

Alibaba Group Holdings Ltd - ADR BABA fell more than 5% lower on Thursday but started to bounce up from the low-of-day after printing better-than-expected fourth-quarter earnings results.

The move caused the China-based e-commerce and tech giant to drop back under the 200-day simple moving average (SMA), which Alibaba regained as support on Wednesday.

For the quarter, Alibaba reported earnings of $1.56 per share on revenues of $30.316 billion, beating the consensus estimate of EPS of $1.35 on revenues of $30.24 billion.

The company said it plans to spin off its cloud division and list it as an independent company, which Wedbush Securities analyst Dan Ives told CNBC Thursday was a "no brainer strategic move that we believe adds to the sum of the parts valuation on BABA."

Although Alibaba was falling on higher-than-average volume, the stock could be settling into a cup-and-handle pattern on the daily chart. A cup-and-handle pattern can be either a powerful reversal indicator when found at the bottom of a downtrend or a continuation pattern when found in an uptrend.

The pattern is formed when a security forms a rounded trough (cup) and then rises upwards before consolidating downward between two parallel lines (handle). The handle should begin to form before the stock has risen up as high as the top of the left side of the cup.

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The Alibaba Chart: If Alibaba continues to trend slightly lower to form the handle of the cup-and-handle pattern over the next few days, and then breaks up from the formation on higher-than-average volume, the measured move of the pattern is about 17%, which suggests Alibaba could trade up toward $110. If the consolidation within a handle happens, it will also take place just under the 200-day SMA, which is bullish.

• Alibaba has been trading in an uptrend since May 9, when the stock bounced up from near the $80 level. Alibaba’s most recent higher low was formed at the $84.76 mark on May 12 and if the stock falls under that level, the trend will be negated, which would be bearish.
• The stock is also trading under a descending trendline, which was been holding Alibaba down since March 30. The trend line may continue to guide Alibaba lower but if the stock can eventually break up from the area, a longer-term reversal to the upside could be on the horizon.
• Alibaba has resistance above at $89.95 and $96.17 and support below at $83.84 and $77.87.

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Photo: Courtesy Alibaba