Buy, Sell or Avoid Alibaba After Its Record $2.8 Billion Fine?

Alibaba is enjoying its best day in months. Is it time to take profits, get long or avoid altogether? Let's look at the chart.
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Alibaba  (BABA) - Get Report has been its best single-day performance in months, up about 9% on Monday.

The move came after the company was hit with a fine from Chinese regulators. The $2.8 billion fine represents 4% of Alibaba’s 2019 revenue and resulted in a record fine in the country.

While large, the fine was less than the maximum that could have been levied, at 10% of revenue. Further, it was smaller than investors had been fearing

Perhaps more importantly, it has investors looking forward instead of focusing on China’s antitrust crackdowns. That’s been a huge cloud over the stock for several months now - after the Ant IPO was derailed.

Management has said the fine will not result in any material impact. As co-founder and Vice Chairman Joseph Tsai said, "We're happy to get the matter behind us.”

While mega-cap tech stocks like Microsoft  (MSFT) - Get Report and Facebook  (FB) - Get Report, the Nasdaq and others indexes have been trading better, Alibaba has been a notable laggard.

Is that about to change?

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Trading Alibaba

Daily chart of Alibaba stock.

Daily chart of Alibaba stock.

Monday's rally in Alibaba stock has been a long time coming, particularly as shares looked like they may be setting up for another test of the December low.

The stock has been drifting down to the $220 area before bouncing, and on Friday Alibaba had its lowest close in a few weeks.

Now rallying higher, shares are back over the 10-day, 21-day and 10-week moving averages. However, the stock isn’t out of the woods quite yet.

It was rejected by the March high at $242.79 and key resistance zone between $240 and $242. At the top of the range also sits the 50-day moving average.

This presents both a hurdle and an opportunity.

On the one hand, current resistance is a clear hurdle. If shares are rejected from this area and fail to hold the 10-week moving average, look for a move below Monday’s low and a possible retest of the $230 area.

However, the opportunity at hand is also clear: Close above resistance and it clears the way for more upside.

If Alibaba stock closes above $243, it puts the 100-day and 21-week moving averages in play. Above that opens the door to the gap-fill level up near $262.

For now, keep an eye on $243.