NEW YORK (Real Money) -- It finally looks like it could be the time for Alibaba Group (BABA). Once thought to be the harbinger of doom for the markets, the mega-size initial public offering did little to stop equities, but after a strong first few months couldn't seem to get out of its own way. Finally, we look like we may have a turning point here.
BABA is not without risks. It is a momentum name and any major move lower in the markets will likely weigh on this stock, but after a tough six months which have seen it fall from $120 back down into the $80s, there are signs of a price pattern reversal.
Earnings propelled the stock higher earlier this month and price has been consolidating the last few days, without breaking the post-earnings reaction low. From a trading standpoint, this sets up an attractive risk-reward, as a trader can use the post earnings low of $85. Technically, it was $84.91, so I would look towards $84.80 as a stop.
There are some bullish indicators here worth noting beyond price. The RSI has pushed over 50 and remains there, while price is in this flag. The vortex indicator has crossed over in bullish fashion as well, ahead of the price breakout, so a small bullish divergence there. Lastly, we have the short-term Mass Index moving up into trend reversal territory. Trend and momentum have been bearish for six months, but BABA looks set to at least test $92, if not fill the gap to $100 over the course of this year. If we push over $92, I think the fill to $100 will come within four to six weeks rather than four to six months. Price isn't quite there yet, but close.
I have to take the weekly chart with a grain of salt here, since this one doesn't even have a year under its belt. The weekly chart does give us a clearer picture of the very bearish downtrend going back to November. Bulls are challenging that downtrend again this week, after failing to break over it last week. The shorter-term vortex indicator has gone bullish, along with the short-term moving average convergence-divergence (MACD), so now we simply need the 13-period RSI to get over 50.
Buying based on the weekly chart here means anticipating the breakout. The stock can pull back to $81 without breaking support, so even though I like the daily chart, the weekly chart means only a half-size position here. If the stock fails to hold $85 on the daily chart, then I will look to take a loss and target the $81 level for entry.
Anything under $80 and there is no reason to be long this stock. The upside target on the weekly chart only sits at $95, so there is a slight difference from the daily chart, but overall, the potential upside here looks to be in the 5% to 15% range with a stop set around 2.5% currently.
Editor's Note: This article was originally published at 10:56 a.m. EDT on Real Money on May 12.