Alibaba Group Holding Ltd. (BABA) is the Stock of the Day here at Real Money and it is looking at a lower opening this Friday morning. All of China is booting up for the biggest shopping event of the year on Sunday, which has been dominated by BABA. Last year the online giant saw more than $25 billion of goods sold in the 24-hour Singles Day. Are we looking ahead or in the rear view mirror? Let's check out the charts and indicators for another perspective on the company.
In this daily bar chart of BABA, below, we can see that prices have slumped significantly from their zenith in June. The slopes of both the shorter 50-day moving average line and the slower-to-react 200-day line are negative. In late August we can see a bearish dead cross of the 50- and 200-day averages. Earlier this month BABA bounced to the upside and stopped short of the 50-day line, which has acted as resistance since July.
The daily On-Balance-Volume (OBV) line tops out in June, and its decline tells me that sellers of BABA have been more aggressive. In the lower panel is the Moving Average Convergence Divergence (MACD) oscillator, which has been below the zero line since the end of June. Recently the MACD oscillator crossed to the upside for a cover-shorts buy signal. Renewed weakness in BABA probably will keep the MACD oscillator in bearish territory.
In this weekly bar chart of BABA, below, we can see an impressive rally from $60 to $210 in less than three years. The rising 40-week moving average line helped to define the bull move, but now the slope of this indicator is negative and prices are well below it. The weekly OBV line has been weakening since June and suggests that a significant amount of liquidation/selling has been done. The weekly MACD oscillator is below the zero line and narrowed slightly, but is not yet at a crossover juncture.
In this Point and Figure chart of BABA, below, the computer program is projecting an upside price target of $199, but the early price action, which is not plotted, could turn the chart bearish for a $120 price objective.
Bottom line strategy: BABA made a low in late October that has yet to be retested. Weakness here on Friday and the next few days should be watched closely. Will the October low hold or could we slide lower to the $120 area? I don't have a definitive answer for you as yet, but I will be watching.