NEW YORK (TheStreet) -- In an October 8 story on Alibaba (BABA) - Get Report we said after a decline to $60 from $120, a rally back to former support in the $80 area could be BABA's next move. In early trading Tuesday, BABA is trading up to $82 and is into the former support area.
In this chart above, we show the price action of BABA through Monday's close. The slow stochastic indicator, which looks at whether the market is overbought or oversold, and the momentum study are situated in a way that we expect to see a bearish divergence. This would be a higher high in the price that is not confirmed by higher readings in these indicators. A bearish divergence is not a quick run-and-act signal, but rather more like an amber traffic light -- a warning.
What are we saying? The bottom line is if you are long BABA from lower levels, we would consider nailing down some profits with BABA trading in overhead resistance in the $80-$90 area and above.
Separately, TheStreet Ratings team rates ALIBABA GROUP HLDG as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
We rate ALIBABA GROUP HLDG (BABA) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The area that we feel has been the company's primary weakness has been its generally disappointing historical performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- BABA has underperformed the S&P 500 Index, declining 22.53% from its price level of one year ago.
- The gross profit margin for ALIBABA GROUP HLDG is currently very high, coming in at 70.71%. Regardless of BABA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, BABA's net profit margin of 152.34% significantly outperformed against the industry.
- Net operating cash flow has slightly increased to $1,677.42 million or 2.25% when compared to the same quarter last year. In addition, ALIBABA GROUP HLDG has also modestly surpassed the industry average cash flow growth rate of -1.88%.
- Although BABA's debt-to-equity ratio of 0.29 is very low, it is currently higher than that of the industry average.
- ALIBABA GROUP HLDG reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($16.24 versus $1.59).
- You can view the full analysis from the report here: BABA