On Friday, Chinese stocks like Alibaba, JD.com (JD) - Get Report , iQiyi (IQ) - Get Report , Huya (HUYA) - Get Report , Baidu (BIDU) - Get Report and others took a spill after reports surfaced about the Trump Administration limiting investments between U.S. investors and China, and potentially altering the listing of Chinese stocks on U.S. exchanges.
By Monday morning, though, those concerns simmered down a bit. Better-than-expected economic data out of China helped soothe sentiment, while the U.S. Treasury said there would be no action regarding Chinese-listed equities in the U.S.
While Alibaba stock is rallying, shares are still down almost 4% from Thursday, the day before the negative news began to surface.
Let's look at the charts to see what's going on.
Save 57% During Our Fall Sale. Join Jim Cramer's Action Alerts PLUS investment club to become a smarter investor. Click here to sign up and save!
Trading Alibaba Stock
For a mega-cap tech stock, Alibaba has very impressive growth and an attractive valuation. Particularly when it's compared to the likes of Microsoft (MSFT) - Get Report , Amazon (AMZN) - Get Report and other mega-cap peers here in the U.S.
Despite this, shares haven't really gone anywhere lately. The stock is up just 2.1% in the past year, and is down about 2.5% in the last two years. A big part of that underperformance is the trade tension between the U.S. and China.
Investors have to price in a risk premium with Alibaba and other Chinese equities, given that it takes just one tweet or headline to send the shares spiraling lower. Look at what happened on Friday, evidenced by the tumble on the chart above.
With Friday's decline, BABA stock knifed through all of its major moving averages, as well as its 61.8% retracement. So long as it remains below the 61.8% and 200-day moving average, it's hard to get too bullish on this stock from a trading perspective.
Bulls need to see a move over $170, so Alibaba stock has a chance at reclaiming its 50-day and 20-day moving averages, and making another run at $178 to $180 resistance.
Below the confluence of support between $169 and $171, leaves open the risk of more downside.
If BABA stock takes out Friday's low at $163.15, it puts the 38.2% retracement near $155 on the table, with 2019 range support near $150 just below that. In short, see if BABA can reclaim the $171 mark. Below it leaves shares open to more downside.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.