14 Apr 2021, 11:30
I’m sure many of you would have been aware of Alibaba (BABA) recent woes having been caught up in the anti-monopoly storm with Chinese regulators. First, it was forced to cancel the ANT Finance IPO which could have been the world’s largest. Then, a few days ago, it was fined $2.8billion by China’s regulators. Rather than pushing its stock price down, investors pushed it up by 9% on Monday. From a technical charting point of view, we could interpret it as investors buying on news, or short-covering. These investors may have been short-selling the stock since Nov and now buying up the stock again to profit-take on this bad news. From a fundamental point of view, investors also see this a not-so-bad news. Its $2.8 billion fine would hardly make a dent on its cashflow, since this number is merely 4% of its 2019 domestic revenue. BABA could afford to pay this fine and, hence, this removes a cloud of worry hanging over the e-commerce giant.
Therefore, some of you may be asking, what now? Is it a good time to buy this stock now that it has escaped from this episode relatively unscathed? We have doubts that investors’ worries are over yet. While Monday’s price action has certainly gave investor’s a positive spin, we still do not see a good reason from the chart below to buy this stock.
For those of you who are well-versed in charting, we see BABA still been caught in a bearish descending triangle trap. You can see from the chart that the stock is making lower highs, this shows us that the bulls may not be as strong. I am not saying that the bulls have not controlled the stock price already, but we still do not have any technical pattern to inspire us to take a bullish position. Rather, a descending triangle pattern could most likely lead to a breakdown of the stock price. If the support at $225, which forms the base of the triangle, is broken, then we could see a short-term bear market for BABA.
Moral of the story is do not be so quick to jump into the stock just because of positive news. Rather, this calls for a lot of patience to see clearly where the direction of the stock is heading before we decide to place our bets. If things are unclear for the moment, then we should step aside and wait for the water to clear before we assess the direction of the tide. At the moment, we are happy to wait, although we suspect its troubles may not be over.