Trading Alibaba Ahead of Earnings

Alibaba had been on fire until negative news about U.S.-listed Chinese stocks. Let's take a look at the stock ahead of earnings.
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It’s a complicated time for Alibaba  (BABA) - Get Report. Shares are down about 3% on Thursday, a day before the company is scheduled to report earnings.

However, it’s not just earnings that are in play now. With Baidu  (BIDU) - Get Report considering delisting from the Nasdaq to increase its value and talks of the U.S. taking a closer look at Chinese equities listed on U.S. changes, Alibaba and its peers have been under pressure.

That’s despite how well its business may be doing and even with shares also listed on the Hong Kong exchange. Even shares of JD.com  (JD) - Get Report, which are breaking out on earnings, have seen momentum wane due to these headlines. 

Before the news, Alibaba stock had been trading really well. Let’s take a closer look at the stock ahead of earnings on Friday morning.

Trading Alibaba

Daily chart of Alibaba stock.

Daily chart of Alibaba stock.

Notice last week’s strength after a gap down on May 14th. Alibaba stock quickly rallied off the lows, dipping down toward — but not touching - the 200-day moving average.

In the same session, shares reclaimed the 50-day moving average, which led to a strong follow-through session on May 15. That helped pave the way to Monday’s gap-and-go, where shares climbed almost 6%.

However, the latest pullback may actually be a good thing. It takes some air out of Alibaba stock, but it also reduces its pre-earnings risk. As usual, let’s wait for the company to report before we make our move.

On a dip, let’s see if Alibaba can find support between $204 and $207. Near the former it will fill its gap from Friday. Near $205.25 is the 20-day moving average, while the 61.8% retracement is near $207.

If this area holds, a retest of the $215 to $220 resistance zone is possible. If it fails as support, it puts the 50-day and 200-day moving averages on the table, near $198 and $194, respectively.

Should Alibaba stock rally on earnings, investors will want to see a close above the 78.6% retracement at $218.05, as well as recent resistance at $220. Above that and the $225 to $230 zone is in play, which stymied Alibaba’s run in January and February.

Above the 2020 high near $231 and $245 could be in play, which is the 123.6% extension of this year’s range.