Take Profits in Alibaba Now
Shares of Alibaba (BABA) - Get Report have looked unstoppable, climbing almost 12% from $73.30 on June 27 to Monday's price of $81.90. That's a move of 8% since I recommended buying the shares on May 4.
But now may be the time to take some profits and move on to the next good idea.
On multiple occasions, Alibaba stock has shown it can't seem to break above its current level. The next move could be sideways to down.
Take a look at the chart below, courtesy of TradingView.
Alibaba stock closed Monday at $81.46, up 3.13%. The shares have risen more than 7% over the past month, while climbing 16.5% over the past six months.
Even with these solid gains, the stock is up less than 1% in 2016, compared with a 4.56% rise in the S&P 500 (SPX) . The stock, meanwhile, has only been making up for lost ground.
From the chart above, you can see that the shares were also at their current level at the beginning of June and in the middle of May. Alibaba shares have been unable to break resistance at $82 per share (red line). The stock has faced strong selling pressure with each attempt to break above that level. It's been like a line in the sand.
The shares declined 8% in April after testing the resistance level, and the stock suffered an almost 11% decline after its June attempt. There is no reason this time to suggest the stock will be successful after yet another attempt.
Why risk an average decline of around 9% when the stock likely can't break above $82?
There are two smart decisions to make: Take your profits now and wait for the inevitable decline to materialize, and then buy back in. Or take your profits and wait for the stock to break above $82, allowing the 20-day to catch up to affirm support. Then buy back in.
Bottom line: holding Alibaba right now doesn't make sense.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.