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Alibaba Stock: How Bulls And Bears Could Profit (Technical Analysis)

Alibaba stock has doubled in value in less than three months. The charts suggest that both bulls and bears have a chance to profit from BABA at current levels
  • Alibaba stock  (BABA) - Get Free Report doubled in value in less than three months, and the rally could potentially continue for a bit longer.
  • If the new uptrend has started, we could see a correction shortly.
  • RSI and MACD show bearish divergence. With the price reaching significant resistance, the stock may be ready for a pullback.
  • Considering that there might be some room for upside, we can open a short-term long position – but the trade’s shelf life might be short.
  • A short position for swing trading can be opened by those looking to catch the pullback.
Figure 1: Alibaba Stock: How Bulls And Bears Could Profit (Technical Analysis)

Figure 1: Alibaba Stock: How Bulls And Bears Could Profit (Technical Analysis)

The price of BABA has been in an uptrend since October 24, when it fell to $58. That was the lowest price reached since September 2015, resulting from a downtrend that started on October 26, 2020.

Figure 2: BABA chart.

Figure 2: BABA chart.

While this decline resulted in a loss of 82%, some positive signs can be seen now. Consider the magnitude of the drop, how long this downtrend lasted, and the fact that we have seen an impulse move now – are we witnessing a new uptrend taking form?

BABA 1h Chart: Momentum = Uptrend?

The 1h chart shows that the bounce since October 24 had a five-wave structure. The price shot up from $58 to $118 at its highest point on January 13, a recovery of 103%. This is a clear impulsive move with strong momentum.

However, before concluding that a new uptrend has started, one must see confirmation in the form of a first higher low.

Figure 3: BABA chart.

Figure 3: BABA chart.

Currently, the price has entered horizontal resistance territory and is showing signs of weakness, as indicated by the bearish divergence on the RSI and MACD.

The wave structure also implies that the move has been completed or is near completion, potentially after another minor higher high to the vicinity of the upper level of the resistance zone at around $126.

Either way, after this ascending move ends, we should expect an ABC retracement. Optimally the retracement should come down to the 0.618 Fibonacci level at $80, as this would be assumed to be the second wave of the higher degree count.

This Fib level perfectly overlaps with the horizontal support zone, which gives validity to the projection.

BABA: The Time Frame Is Crucial

The ascending channel we are currently seeing could be an ending diagonal, in which case an ABC retracement will start shortly. It could also be a Flat correction of the fourth wave, meaning that another higher will come before this ABC correction starts.

Considering that there is still more room to go, we can think of either opening a long position on a smaller time frame or waiting for this ascending move to catch a short for the ABC.

Trading BABA Long

The price is currently testing the ascending support level and the horizontal one. If it holds, one can open a long position and catch the remaining increase.

  • Entry: $113.82
  • Stop loss: $111.41
  • Take profit: $124-126
  • Risk to reward: 4.5
Figure 4: BABA chart.

Figure 4: BABA chart.

Trading BABA Short

First, we should wait to see the completion of the current rise. One of the first things to look for would be a breakout either below the ascending support level or the horizontal resistance zone.

However, since the price has been in an uptrend, we should not enter only on a breakout but after the first two waves of the A wave have been seen.

  • Entry: $111.8 (on the downtrend continuation after the first lower high)
  • Stop loss: $120 (at the top which is yet to be seen)
  • Take profit: $80.
  • Risk to Reward: 3.88 
Figure 5: BABA chart.

Figure 5: BABA chart.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)