The price of Alibaba Group (BABA) has been trading sideways to higher since the beginning of November. The $85 level has been acting as resistance, while the chart, below, shows higher lows in November and December. Chartists call this pattern of price activity a rising or bullish triangle.
In this chart of BABA, above, we only need to look at the past two months. Notice how the volume of trading has declined since early November, as the trading range for BABA has narrowed. The range is getting tighter and tighter, offering fewer opportunities to make money. Traders, and their volume, have gone elsewhere. The On-Balance-Volume (OBV) line is neutral. The momentum study is bearish as equal price highs square off against lower momentum readings.
Bottom line -- the price chart and volume pattern say this is a bullish, or rising, triangle that could soon break out on the upside. How to play it smart? Go long BABA on an $86 buy stop and use a sell stop at $79. The height of this triangle is $10 ($75 to $85), and adding that to the breakout point gives you $96 as a price target. Nothing in the world of technical analysis is 100%, so always remember that stop loss order.