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Alibaba Earnings Preview: How to Trade It After the Print

Alibaba has had a bumpy couple of months, with shares bouncing up and down. Let's look at the charts ahead of earnings.

Alibaba  (BABA) - Get Alibaba Group Holding Limited American Depositary Shares each representing eight Report shares were rallying on Monday, up about 2.5% with earnings due up on Tuesday before the stock market opens.

A few months ago, bulls were eagerly gobbling up the stock. Now? Not so much, save for the pre-earnings bump.

A lot has happened in the last few months, sending shares of Alibaba spiraling lower. While the stock has recovered from the lows, investors will be seeking plenty of reassurances from management.

The stock took a big hit when the Ant's initial public offering was shelved in China over regulatory concerns.

Then there worries about founder Jack Ma, Alibaba’s possible monopolistic operations and concerns over being delisted from the New York Stock Exchange.

Throw it all together and this cocktail of negative news had Alibaba fall 34% from peak to trough in about two months. With Monday’s rise, shares are still down about 20% from the highs.

Trading Alibaba

Daily chart of Alibaba stock.

Daily chart of Alibaba stock.

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On Dec. 24, Alibaba stock dipped to a low of $211. There it found immediate support, as the 100-week moving average and prior high from 2018 stepped in and buoyed the share price.

The stock has recovered nicely since then, although there’s been some bumps along the way. Alibaba now sits just above the 10-day, 50-day and 200-day moving averages ahead of earnings.

To lose this trifecta of moving averages would be a negative development, putting the 21-day moving average and $240 level in play.

Should those levels fail as support, $225 or lower might be on the table, with the recent lows again coming into play near $211 and the 100-week moving average.

Bulls are hoping that Alibaba delivers a solid result and management reassures investors on its current political situation in China. If it can do that, more upside is possible.

Specifically, longs would love to see Alibaba reclaim the 100-day moving average near $271. Doing so would also trigger a two-times monthly-up rotation, meaning Alibaba would take out the January and December high, at $269 and $271.30, respectively.

That could open the door to $280, eventually followed by a gap-fill at $290.50.

The bottom line: Let’s see how the stock trades after the report. Below $250 will have us cautious. Above $271 will have us bullish.