Alibaba Group (BABA) gapped sharply lower last week on news that Chinese regulators have launched an anti-monopoly investigation into Alibaba. Let's check and see how much damage was done to the chart and indicators.
(For more on Baba, see here and here.)
In this updated daily Japanese candlestick chart, below, we can see that prices broke down in early November. Prices closed below the 50-day moving average line and the slope of the line quickly turned negative. BABA gapped below the still rising 200-day moving average line last week as the decline continued.
Trading volume surged on the gap down session and the On-Balance-Volume (OBV) line sank to a new low for the move down. A weak OBV line tells us that sellers of BABA are more aggressive.
The trend-following Moving Average Convergence Divergence (MACD) oscillator fell below the zero line in the first half of November for an outright sell signal.
In this weekly Japanese candlestick chart of BABA, below, we can see that the gap disappears when a weekly high/low chart is constructed. The middle of this large red candle will likely act as resistance on bounces. Prices are below the still rising 40-week moving average line.
The weekly OBV line shows weakness from the middle of October. The MACD oscillator crossed to the downside in November for a take profits sell signal.
In this daily Point and Figure chart of BABA, below, we can see a potential downside price target in the $202 area.
In this weekly Point and Figure chart of BABA, below, we can see that the software is projecting the $186 area as a potential downside price target.
Bottom line strategy: I have no idea what the Chinese regulators and party leaders have in mind for Alibaba and other companies. What I do know is that the trend turned down in early November and the risk is that all the gains since March could be wiped out if the Point and Figure charts are correct in their targets. Stand aside.
