Alibaba (BABA) put together one heck of a quarter, reporting much better-than-expected fiscal fourth-quarter results. Despite that, shares were up less than 1.5% on the day, closing at just $177.60. What should investors make of this?
Believe it or not, shares of Alibaba actually went negative in early Wednesday trading. That's despite earnings of $1.28 per share surging past expectations of 95 cents. Revenue of $13.93 billion beat analysts' expectations by $600 million and grew a whopping 51% year over year.
Considering the fact that shares fell more than 10% in the seven trading sessions leading up to this big earnings beat, one would think Alibaba stock is a buy, buy, buy! Right?
If it weren't for the recently escalating trade tension between the U.S. and China -- where Alibaba is headquartered -- then it's very likely this one would be ripping on a report like this. It's even more likely when one considers the big breakout Alibaba stock was in the midst of before trade talks began to intensify again.
Trading Alibaba Stock
When there's a trade deal, Alibaba and other Chinese equities likely will see a healthy rally. Until then though, the gains in Alibaba stock may be muted, even as other large-cap tech enjoys a strong session. For instance, Amazon (AMZN) , Alphabet (GOOGL) and Microsoft (MSFT) are up nicely on Wednesday, climbing 1.2%, 3.5% and 1.25%, respectively. Even Alibaba peer JD.com (JD) was rising 2.75%.
On the daily chart above, you can see the strong breakout we had in Alibaba stock when it broke above $188 and ran to $195. Similarly, we can also see the breakdown too, where shares quickly lost the 20-day and 50-day moving averages, as well as uptrend support that had been in play since February.
Alibaba stock didn't quite make it down to the 200-day moving average, but as you can see below on the weekly chart it bounced perfectly off the 50-week moving average. With the $168 to $170 level holding as support, investors now have a low to measure against if they have a long position.
On a continued rally, let's see if Alibaba stock can get above its 10-week moving average at $181.57 and its 50-day moving average at $182.62. Above that and $188 and/or the backside of prior uptrend support could be on the table. On the downside, I want to see the $168 to $170 area hold, with $170.73 serving as the 50% Fibonacci retracement for the 52-week range.
Below this week's low and BABA stock will have an immediate test with its 200-day moving average. If it fails as support, the 38.2% retracement at $161.07 will be on deck.
Unfortunately, much of Alibaba's price action may be driven by trade-war headlines, even if management downplayed their impact on the conference call. Watch $181.50 to $182.50 on the upside and $170 on the downside.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.