Publish date:

Alibaba Stock Needs to Reclaim This Level of Support After Earnings

Alibaba stock desperately needs to reclaim a key level of support, but so far it hasn't been able to. Let's look at the charts.

For the moment, Alibaba  (BABA) - Get Alibaba Group Holding Ltd. Sponsored ADR Report shares have been avoiding a big breakdown. But the stock isn’t really giving bulls what they were looking for when it comes to earnings.

The company beat earnings expectations, but missed revenue estimates. As it stands, shares are down about 2% so far on Tuesday as investors digest the news.

Although Alibaba did increase its share repurchase plan, that’s not really why investors originally liked the stock.

They liked Alibaba as many bulls considered it the “Amazon  (AMZN) - Get Amazon.com, Inc. Report of China,” where the country was larger and Alibaba’s dominance had more potential. Plus it had strong secular growth.

However, investors' fears of the Chinese government are not abating.

Those fears hammered Alibaba, JD.com  (JD) - Get JD.com, Inc. (JD) Report and Didi  (DIDI) - Get DiDi Global Inc. Report in late July, while Didi had a horrendous IPO debut as a result.

Although Alibaba settled a record fine with Chinese authorities in April, regulatory concerns just won’t go away. That has created an overhang with the stock. Can it clear it?

Amazon is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AMZN? Learn more now.

TheStreet Recommends

Trading Alibaba Stock

Daily chart of Alibaba stock.

Daily chart of Alibaba stock.

Alibaba peaked in the fourth quarter, just ahead of the Ant IPO. That event was derailed by Chinese regulators too and it’s what kickstarted the multi-quarter breakdown in Alibaba stock.

Shares have been trending lower since, with the 21-week moving average acting as a major downtrend resistance point. Little by little, each support area has failed amid this trend.

Most recently, downtrend support (blue line) and the 200-week moving average failed as support near $200 last week.

Bulls were greeted with a painful gap-down last week and while that pain eventually subsided, the rebound is now in jeopardy.

Ahead of earnings, Alibaba stock rallied back up toward the 200-week moving average and its prior support area. However, it was unable to reclaim it. With earnings, the hope was that it would send shares above this area, allowing it to again act as support on future dips.

Right now though, the worry is that former support is turning into current resistance. Plus, we’re not getting a post-earnings pop - we’re getting a flop.

On the upside, Alibaba has to reclaim the 200-week moving average and the $200 area. Above that reduces some of the recent technical damage and puts the 50-day moving average in play, followed by the 21-week.

On the downside, keep an eye on $190. Below $190 and a gap-fill down to $187 is in play. Below the current low (at $179.67) and the March 2020 lows could be in play near $170.