Alibaba Group Holdings Ltd. (BABA) gapped lower Monday after reports circulated about the e-commerce company moving its headquarters out of Hangzhou, China to Singapore.
Let's check out the condition of the charts and indicators.
In the updated daily bar chart of BABA, below, I can see a number of buy signals playing out until prices run out of steam. BABA bottomed in late October. Prices rallied in November, December and most of January.
Trading volume has decreased on the advance and that does not confirm the gains. The daily On-Balance-Volume (OBV) line shows a rise from early November but turned sideways in January as prices continued to rise. This is a subtle bearish divergence.
The Moving Average Convergence Divergence (MACD) oscillator has crossed to the downside for a take profit sell signal. In my January 17 review of FXI and BABA I noted that the advance in Chinese stocks was slowing.
In the weekly Japanese candlestick chart of BABA, below, I see a mixed picture. Small real bodies suggest that bulls and bears were in balance last week. The shares have rallied to the prior high around $120 but have stalled. Prices are above the 40-week moving average line which is bottoming.
The weekly OBV line is pointed upwards but shows a possible peak. Trading volume has been shrinking during the rally. The MACD oscillator is poised to cross the zero line but the oscillator has begun to stall/narrow.
In this daily Point and Figure chart of BABA, below, I can see that prices reached and exceeded an upside price target in the $98 area.
In this weekly Point and Figure chart of BABA, below, I can see an upside price target in the $137 area. I am not sure what price will turn the chart negative.
Bottom-line strategy: Monday's downside price gap on BABA should remind traders that a stock that rises on shrinking volume is suspect. Continue to avoid the long side of BABA.
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