Alibaba stock analysis: this indicator suggests a strong rally is about to start

The Alibaba share price analysis shows the selling may have exhausted and the stock could be ready for an up-move

The Alibaba (NYSE: BABA) stock has been in the news for the past few months due to the scrutiny and allegations of wrongdoings by Chinese regulators. Recently, China’s State Administration for Market Regulation fined the company $2.75 billion for violating the anti-monopoly law of the land.

This news sent the stock soaring because the fine was lower than what many investors had anticipated. If the regulator does not return to strike back again, it will allow the company to move ahead and charter its growth strategy.

Though Alibaba is not an exact clone of Amazon, it has a very similar business. The company dominates the e-commerce business in China supported by the strong presence of Tmall and Taobao, both owned by Alibaba.

The company continues to clock record growth with analysts expecting a 39% revenue growth in 2021 and 31% in 2022. 

For reference, let’s compare the valuation of Amazon and Alibaba. The analysts estimate Amazon to report earnings-per-share of $48.2 for 2021 and $66.18 for 2022. At the current price of $3,340, Amazon trades at 69 times this year's earnings and 50 times next year’s estimates.

On the other hand, Alibaba is expected to earn $10.11 per share in 2021 and $11.05 in 2022. At the current price of $232, Alibaba trades at 23 times this year and 21 times next year’s estimates. This shows that Alibaba’s valuation is much cheaper than Amazon’s. 

Charlie Munger's Daily Journal recently added 165,000 American depositary shares in Alibaba, possibly recommended by Himalaya Capital Management founder and chairman Li Lu, also dubbed the “Chinese Warren Buffett”.

With the regulatory hurdles out of the way, will Alibaba stock go up? Let’s perform the Alibaba stock price analysis of the weekly chart to find out.

Alibaba share price technical analysis – weekly chart

Alibaba stock weekly

The Alibaba share price rallied from a low of $169.91 in March 2020 to an all-time high at $319.21 in October, an 87 % gain in about seven months. However, since then, the stock has been under pressure. 

It corrected 33% from the top and plunged to $211.10 in December. The moving averages have completed a bearish crossover and the relative strength index (RSI) is in negative territory, suggesting the bears have the upper hand.

If the bears sink the price below $211.10, the stock may plunge to the trendline. If the bulls fail to defend this support, the next stop could be a fall to $169.91, completing a 100% retracement of the rally that started in March of last year.

This positive view will invalidate if the bulls can drive the price above $275. Such a move will suggest the possibility of a retest of $319.21.

The Alibaba stock price analysis of the weekly chart shows the stock continues to remain under pressure. Let’s perform the BABA stock analysis of the daily chart to see if it has any bullish setups.

Alibaba share price technical analysis – daily chart

Alibaba stock daily

The bulls have successfully defended the $219.93 to $211.10 support zone for the past few months but they have not been able to push and sustain the price at higher levels. This suggests that traders continue to sell on every rally.

While the 50-day SMA is sloping down, the 20-day EMA has flattened out and the RSI has also risen to the midpoint, forming a bullish divergence. This suggests that the selling may be getting exhausted.

If the bulls can propel the price above the downtrend line, the stock could attempt to start a new uptrend. The first resistance on the upside is $274.05 to $281.41 resistance zone. A breakout of this zone could result in a rally to $319.21  

Alibaba stock: buy or sell at these levels?

The Alibaba share price analysis shows that sellers may be losing their grip. Traders may buy on a breakout and close above $247 with an initial stop-loss of $210. The stops could be trailed higher as the stock moves up.

Contrary to this assumption, if the price breaks below the $211.10 support, traders may remain on the sidelines until a bottom is confirmed.

Trade Alibaba – Alibaba share price

Alibaba Group Holding Limited
Daily change
152.39
Low: 149.5
High: 153.75

FURTHER READING: S&P 500 technical analysis: time to book profits?

FURTHER READING: Palantir stock analysis: the bears may be planning a serious assault

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