How to Trade Alibaba After Its Hard Selloff and Earnings

Alibaba tumbled 8% on Tuesday. Can it regain its mojo after it reports earnings?
Author:
Publish date:

Alibaba  (BABA) - Get Report shares were trying to recover from Tuesday’s slide after the stock fell more than 8% on the day.

The pullback was unfortunate, with Alibaba stock trending above its short- and long-term moving averages ahead of earnings and Single’s Day. JD.com  (JD) - Get Report has been trading quite well too (and still is).

With earnings on deck for Thursday before the stock market opens, bulls are bidding Alibaba back up by more than 3% on Wednesday. Of course, it helps that the stock market is moving solidly higher on the day too, despite some election headaches.

Single’s Day will take place on Nov. 11, so Alibaba has two potentially big catalysts in the next week. However, Ant Group halting its initial public offering process in China dealt a blow to the stock on Tuesday.

Investors will be looking for clarity on the Ant IPO situation, as well as positive commentary around Single’s Day. Let’s look at the chart.

Trading Alibaba

Daily chart of Alibaba stock.

Daily chart of Alibaba stock.

Tuesday's gap-down action sent shares below the 50-day moving average, a level that Alibaba stock failed to reclaim during the session. However, the stock held uptrend support (blue line), a mark that’s been in play since early July.

With Wednesday’s rally, shares are reclaiming the 50-day moving average and threatening to reclaim $300.

Reclaiming $300 would be a victory for the bulls, but with earnings right around the corner, this level becomes less relevant in the short term.

What bulls want to see now is for either support to hold on a bearish reaction to earnings, or for the stock to surge higher on a bullish reaction.

If it’s the former and shares dip, investors need to see uptrend support and this week’s low at $280.78 hold as support. A close below these marks will put the September lows in play near $265 to $270.

This has been a significant level over the past few months. It’s also where the 100-day moving average comes into play.

On the upside, investors obviously need to see shares reclaim $300 and close above this mark. That will open up the stock for a potential gap fill up toward $310.

Above $310 puts the prior all-time high in play near $320, followed by the 261.8% extension near $330. Getting to this point would require a roughly 10.5% rally in Alibaba stock over the coming days and/or weeks.

Let’s see what the reaction is first and go from there.