
How to Trade Alibaba's Fourth-Quarter Earnings for a Nice Pop
The 140-point drop Tuesday in the Dow Jones Industrial Average (DJI) has heightened fears that investors may be following the "sell in May" strategy.
That makes holding Alibaba (BABA) - Get Report shares through its fourth-quarter earnings results Thursday a risky proposition. But it doesn't have to be. If timed correctly, it can be a profitable trade.
The market will focus on Alibaba's key fundamentals. For the quarter that ended in March, Wall Street expects Alibaba to deliver earnings per share of $3.62 on revenue of $23.18 billion, translating to year-over-year growth of 21.5% and 33%, respectively. For the full year, earnings are projected to rise 23.7% year over year to $17.29 per share, while revenue of $100.11 billion would mark a rise of 31.4%.
Expectations are high. But Alibaba stock is priced at just four times full-year estimates, compared to a forward price-to-earnings ratio of 17 for the average stock in the S&P 500 index. The fear is that the stock will be punished in the manner of Apple (AAPL) - Get Report and Alphabet (GOOGL) - Get Report , both holdings in in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio.
From a technical perspective, even as Alibaba stock has risen almost 20% in the past three months, the shares look attractive. The stock looks to be setting up for a nice pop after the announcement. Take a look at the black arrow on the chart, courtesy of TradingView.
And look at the solid blue line on the chart. While Alibaba shares, which closed Tuesday at $75.91, are trading below both their critical 20-day ($78.44) moving average, the stock maintained support above both the 50-day ($75.58) and 100-day ($74.22) moving averages. Just as important, Alibaba stock now trades well above the 200-day average (solid orange line), which is at $74.01 -- a strong area of support.
How to execute the trade: Between Wednesday and Thursday, place a market order at any price under $76 per share. Market-related news may impact how Alibaba trades during this span, including the ADP Employment Report, due out Wednesday and jobless claims numbers, due out Thursday. If both reports are solid, Alibaba stock may see a slight bounce to the upside. Hold the shares through the earnings announcement Thursday on the hope that support will hold at the 50-day area of $75.58.
From a technical view, the chart says Alibaba stock should reclaim its 20-day average of around $78 on decent results. Alibaba has beaten on both the top and the bottom lines in three out of four quarters. If it does so again, the stock could reclaim its April 20 high of $81. The bet is that Alibaba will deliver blowout results, sending the stock to $85.50 (green arrow).
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.










