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Chart Talks: BABA spots a bullish RSI divergence. Can it extend the breakout?
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SpyderCall joined discussion · Jul 8, 2023 15:27

BABA's Technical Update

BABA's Current Narrative
One of the best companies in China has had a rough few years in the stock market. BABA experienced a very bullish Friday due to the markets assumption that the chinese government is easing its megacap tech crackdown.
This assumption stemed from the chinese government giving Ant group a measly fine of several hundred million dollars. This is chump change to a huge company like BABA. If this is the extent to the China tech crackdown, then it might be a lot less harmful than investors have feared.
Will this be the end of BABA's downtrend? The long term-trend with Alibaba is downward, but the technicals on its charts are showing signs of short-term bullishness. Will Friday's bullishness continue into next week?
If you have not been keeping up with the updates on Alibaba's price action then check out the previous update for in the link below.
SpyderCall: BABA's Technical Picture
Economic Data
One major factor that could affect BABA's share price next week is economic data.
China CPI data will be released on Monday. This data will likely have an effect on the entire chinese market. This data could change the idea of the supposed chinese stimulus that investors are talking about. Stimulus expectations have pushed chinese equities upward from time to time. If the data comes in hot, then the chinese government will have no need for more stimulus. But, typically speaking, inflation is good for a company like BABA in the long run. So the reaction in chinese markets will be interesting to watch when this data is released.
On a side note, chinese inflation would be bad for the American economy and US equities, in theory. This data release will be very important to watch.
The Short-Term Technical Picture
The short-term picture for Alibaba is beginning to look more and more bullish. An apparent bull flag has formed on BABA's charts following the major china reopening rally that lifted all chinese equities. It appears that the price action of BABA is breaking out to the upside of the bull flag candle stick pattern.
Three weeks ago, there was a fale breakout, which was followed by the price retesting the previous resistance of this bull flag. It is still too early to tell, but after Friday's big green candle, it looks like a breakout to the upside can be confirmed, at least, in the short term.
There is a possible new trend that is forming which I have highlighted in the chart below by the purple lines. I am vaguely watching this new potential price channel for range bound price action within the channel, or a breakout to the upside or downside of this channel.
BABA's Technical Update
BABA's Technical Update
In the chart directly above you can see how the major subindicators are beginning to flip to the bullish side. Also notice the major spike in volume that occured last Friday as BABA's price bounced off of a very short-term support.
A big spike in volume near support at a relatively low price is bullish in the very short-term, in my opinion. I like to place short-term swing trades when this occurs.
Supprt and Resistance Levels
I have highlighted the major and minor support/resistance levels that I am watching for reversals or bounces in price. When price reaches these levels, I am watching for volume or a large amount of traders buying or selling at these price points.
BABA's Technical Update
Long-Term Trend
The long-term trend is obviously down, so things are not looking good for BABA. But there is a massive amount ov investors entering at these historically low prices for Alibaba. The price action is consolidating at these low prices, which might be indicative of a bottoming pattern that is forming.
If the price can get some major upside in the mid-term, then this potential reverse head-and-shoulders pattern could get confirmed. This would be a bullish development. But there is plenty of time before this poptentially happens.
BABA's Technical Update
Idealy you would want to see the Hang Seng and Hang Seng Tech Indices gaining strength in order to be completely confident in BABA's bullishness. So far, the Hang Seng has not climbed out of its own bullflag.
BABA's Technical Update
Conclusion
The short-term is looking bullish while the long-term picture is still bearish. Personally, I am considering going long next week for a short-term swing trade. If I were in China, then I would wait until the CPI data release before entering into any trades. Even then, I would wait to see how the market digests the economic data before making any hasty decisions.
Hypothetically, my intentions would be only swing trading this name until the long-term trend starts looking better. Or until China's economic data starts looking more accomodative for chinese equities.
I have said before that BABA is one of the best companies in China. It is like the Amazon of China, in a sense. That being said, I think this is a very good price to buy BABA for a very long-term investment like an IRA or retirement account. But if you can't wait that long for your investment, then you might want to sit on your hands until there is more data.
As always, this is not investment advice. Good luck trading. Be careful and be patient. Give your investments time. Don't be greedy. Don't invest in anything you don't understand. Don't put all of your eggs in one basket. Don't listen to the hype. Don't fomo or panic into or out of trades. And just follow the trends. A trend is your friend.
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SpyderCall
Trade the trends via technical, fundamental, and macro analysis. Day Trades, swing trades, and long-term investments.
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