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Buy or Sell Alibaba on Earnings? Let's Look at the Charts

Alibaba is down slightly despite beating earnings expectations. Let's look at the chart the stock to see if it reveals the next move.

The lack of volatility in Alibaba  (BABA) - Get Alibaba Group Holding Ltd. Sponsored ADR Report and Nvidia  (NVDA) - Get NVIDIA Corporation Report are impressive, given that these stocks have had big rallies leading up to earnings.

Despite beating on earnings estimates before the open, Alibaba was down about 1.3% on Thursday. The company also beat on revenue expectations as online sales surged higher in the quarter.

Nvidia is in a similar state after beating on sales and earnings estimates on Wednesday evening. In fact, multiple companies - including Walmart  (WMT) - Get Walmart Inc. Report, Home Depot  (HD) - Get Home Depot, Inc. (HD) Report and Lowe’s  (LOW) - Get Lowe's Companies, Inc. (LOW) Report - have been seeing similarly flat price action after big rallies and strong quarterly reports.

Aside from the premium sellers in the options market making a killing, what is the takeaway from this price action? Patience.

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Trading Alibaba Stock

Daily chart of Alibaba stock.

Daily chart of Alibaba stock.

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Aggressive bulls may throw patience to the wind, instead using Thursday’s modest dip as a buying opportunity. That’s fair. It was a strong quarter and the stock isn’t giving up its pre-earnings gains after the results. So it may very well resolve to the upside.

For more conservative bulls though, they may prefer to wait for more clarity. Specifically, Alibaba stock is wedging into a tighter and tighter trading range. That’s evident by its series of higher lows and lower highs, highlighted by the blue lines on the chart above.

On a rally, I want to see Alibaba take out this week’s high at $261.42. Above that puts wedge resistance in play, as well as this month’s high at $265.98. Above that and the all-time high at $268 is in play, followed by the 261.8% extension up near $269.

If Alibaba can clear all of these marks, there is technically room up toward the two-times range extension near $292.

On the downside, bulls should keep an eye on wedge support near $250, followed by the 50-day moving average and mid-$240s. Both of these two marks have been decent support and could present investors with a buy-the-dip opportunity.

However, a close below $240 puts the $230 breakout zone back in play, followed by a possible move down toward the 200-day moving average.

Here’s the bottom line: Alibaba stock has been resilient in the last two months. I like that it’s not breaking down and that has me leaning bullish. Aggressive bulls should look for a rotation higher, while more conservative bulls can look for dips to buy.