Alibaba Group Could Dip Further Near Term

 | Aug 11, 2017 | 10:21 AM EDT
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Alibaba Group Holding Ltd. (BABA) was last reviewed on July 13. At that time, we gave our analysis of the charts and indicators and raised our trading parameters, stating: "Bottom line -- longs are happy but they should look to raise sell stop protection to a close below $135 while looking for gains to $167 or higher."

Now that prices have stopped a couple times at $160 -- short of our $167 target -- and many stocks are correcting, a fresh look could be useful. Let's check the charts and indicators again.

In this daily bar chart of BABA, above, we can see that prices are still above the rising 50-day moving average line. This morning prices are testing minor support around $150. The July-August volume pattern is neutral, but the daily On-Balance-Volume (OBV) line peaked in June and has softened since then, suggesting that sellers of BABA turned modestly more aggressive the past six weeks or so.

In the lower panel is a bearish divergence, with the momentum study showing lower highs from June to August as prices showed higher highs. This divergence tells us that the pace of the rally slowed.

In this weekly chart of BABA, above, we only have one warning signal. Prices are above the rising 40-week moving average line. The weekly OBV line is bullish, but the weekly Moving Average Convergence Divergence (MACD) oscillator has begun to narrow toward a take- profits sell signal. This is a sell signal when the MACD oscillator is above zero line or when prices are still in an uptrend. You can take profits in an uptrend, but you do not want to go short in an uptrend.

In this Point and Figure chart of BABA, above, we can see a modest downside price target and an area of potential support in the area of $143 to $134.

Bottom line: BABA could break the rising 50-day moving average line in the days ahead, but without a large distribution pattern I do not yet see a big downside risk. I would continue to maintain sell-stop protection around $135.

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