Alibaba at High as Ant Group Mulls IPO - Here's the Trade

Alibaba stock is surging to highs as 33%-owned Ant Group looks to IPO. Let's look at the charts.
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Alibaba  (BABA) - Get Report shares have been trading very well lately and on Wednesday the stock got another boost.

The American depositary receipts are up more than 8% on the day on reports that its Ant Group affiliate is looking to IPO. 

Unlike Alibaba, which made its IPO on the NYSE before making its debut in Hong Kong several years later, Ant Group, the Hangzhou, China, payment-processing-technology provider, will look to IPO in Hong Kong.

Ant Group is looking for a valuation north of $200 billion in the deal. Given Alibaba’s 33% stake, the potential value to investors is clear.

Alibaba shares stumbled a bit after the company reported earnings in late May. But the stock quickly found its footing and has had no problem moving higher in the weeks since.

Then, Chinese stocks started off the week with a bang and that helped drive Alibaba, JD.com  (JD) - Get Report and others to highs. Ant Group news is now helping drive the narrative, with both stocks hitting new highs.

Let’s look at the charts.

Trading Alibaba Stock

Daily chart of Alibaba stock.

Daily chart of Alibaba stock.

On the daily chart above, earnings are highlighted with a purple arrow. However, it also shows that this dip found support at the 50-day moving average and uptrend support (blue line).

Soon after, the shares traded up to $230 resistance before dipping back into uptrend support. It’s worth mentioning the very tight daily ranges Alibaba stock displayed near uptrend support, as buyers gobbled up each dip, setting the stage for a quick rally.

That rally rather explosively sent Alibaba stock over the prior high (from Monday), with Wednesday’s rally extending even higher. In fact, the shares are clearing the 123.6% and 138.2% extensions on the day. 

Ideally, the shares will hold up over the latter. If they can do that, the 161.8% extension is in play as an upside target. That seems far — another $10 a  share — but it’s within a reasonable range given the current price action.

On the downside, see if Alibaba stock fails to hold the 123.6% extension near $245 and fills the gap from Wednesday. If it does, it puts a retest of prior resistance in play near $230.

A dip to this level that finds support would be bullish in my view.