Alibaba’s Sending a Buy Signal Despite Coronavirus Worries

The coronavirus isn't derailing the rally in e-commerce giant Alibaba.
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Chinese markets are under pressure in 2020 as investors worry about the impact of the coronavirus on the world's second-largest economy.

With more than 20,000 confirmed coronavirus cases globally at the start of this week, Chinese authorities have cracked down on residents’ movements, and businesses have shuttered temporarily to tamp the spread of the flu-like virus.

But while China’s economic engine is cooling this year, Chinese e-commerce behemoth Alibaba Group (BABA) - Get Report is actually sending U.S. investors a buy signal this week.

That’s not as much of a contradiction as it may first seem to be. Consumers wary of shopping in person are increasingly turning to online marketplaces to source items. So are healthcare workers – Alibaba’s logistics arm announced Tuesday that it has shipped more than 5 million pieces of medical supplies to the Hubei province in the past nine days.

Likewise, news that the People’s Bank of China will intervene to help stimulate the country’s economy is helping to give Chinese stocks a shot in the arm.

To figure out how to trade it, we’re turning to the charts for a technical look.

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At a glance, the price trajectory in Alibaba has been bullish over the course of the last six months or so. Since the start of August, shares are up more than 38%, casting a big shadow on the S&P 500’s otherwise strong performance over the same stretch.

Shares have established a well-defined uptrend that’s acted like a springboard higher for shares since last fall. This week, we’re seeing the bullish reaction to the most recent test of that trend line.

That clears the way to more upside ahead, as Alibaba works its way back up its price channel.

The price level to watch for Alibaba from here is $200 support. If shares meaningfully violate $200 to the downside, then the uptrend is busted and you don’t want to own it anymore.

That jives with the longer-term price action in shares of Alibaba right now:

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Looking at the weekly chart, Alibaba spent much of the last two years forming a pretty textbook version of an ascending triangle pattern that triggered a breakout above $200 in the final weeks of 2019.

Shares’ retreat last month looks like a throwback, a common short-lived pullback that comes following a push past a key level. Here again, the $200 level is the do-not cross line for this long-term price setup.

The combination of a bullish price setup and a well-defined risk-management level make Alibaba look like a very tradable name for 2020.

Uncertainty is likely to continue to swirl surrounding the Chinese market for a while to come – but in Alibaba’s case, bulls look like they’re squarely in control of the price action here.