No two ways about it: 2017 has been a phenomenal year for shareholders in Alibaba Group Holding Ltd. (BABA - Get Report) . Since the calendar flipped to January, shares of this mega-cap Chinese e-commerce stock have basically doubled, leaving the big stock market averages in its dust.
More recently, though, Alibaba's price trajectory has been a little bit trickier to decipher.
Shares corrected fairly steeply in November, shedding just under 5% of their market value at the same time the S&P was charging to new record highs. And that selling continued into the start of this month, scaring some investors away.
But Alibaba is still a stock that should be on investors' radar in the final stretch of 2017 -- shares are turning higher after a critical bounce off of a long-term price floor in shares.
To figure out how to trade it from here, we're turning to the chart for a technical look:
Heading into December, the price action couldn't be clearer -- shares had been charging up and to the right since Alibaba's uptrend changed slope back in mid-August. Since then, every test of trendline support at the bottom of the price channel provided investors with a low-risk, high-reward buying opportunity on the subsequent bounce higher.
Only, that didn't happen at the start of December.
Instead, shares showed investors a textbook example of a bear trap.
A bear trap is a price setup that looks bearish at first blush, only to return to bullish territory in short order. It gets its name because it tricks bears into selling (or worse, shorting) right before shares return to buy-mode. That's exactly what happened in shares of BABA this week.
Shares violated their uptrend channel Monday, only to bounce off of long-term horizontal support at $165, and return to the bullish trend channel later in the week. That's the danger of turning bearish too early on a stock that's rallying higher and being propelled by an ebullient market -- there's no shortage of meaningful support levels on the way down.
So while Alibaba's fifth test of trendline support hasn't exactly been textbook by violating its uptrend with a bear trap, it still looks buyable here.
Likewise, this isn't Alibaba's first bear trap. Shares have temporarily violated uptrends in the past -- most recently in mid-May -- only to quickly rebound and trade back within the trend in the sessions that followed.
That's good reason to stay bullish on BABA in the final stretch of 2017.
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