Alibaba Looks To Confirm Trend Change: What's Next For The Beaten Down Stock?

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Alibaba Group Holding Ltd (NYSE:BABA) gapped up over 3% higher Tuesday morning despite news China is looking to impose harsher regulations on the e-commerce giant.

Immediately following the markets opening, a number of options traders sold call contracts they had bought when Alibaba traded lower Friday and Monday to lock in profits.

At 9:37 a.m. ET options traders began buying call contracts after Alibaba tested the eight-day exponential moving average as support and held above it.

The largest single order was purchased at 9:42 a.m. and cost the trader a total of $447,496. The trader executed a call sweep near the midpoint of 244 contracts at $18.34 per piece with a strike price of $160 that expire on Nov. 19.

The bullish options traders may believe the bottom is in for Alibaba and the stock is headed up to fill a number of gaps left behind.

See Also: How to Buy Alibaba Stock • Right Now

The Alibaba Chart: Alibaba hit a low of $152.80 on Aug. 23 and printed a bullish hammer candlestick which indicated an upwards trend change could be in the cards. The stock then put in a high of $174.15 on Aug. 24 before falling about 9% over the following four trading days.

On Monday, Alibaba put in a low at the $158 mark and closed up almost 2% higher on the day. The price action likely marks a higher-low on the daily chart which may confirm the stock is entering into an uptrend.

Bullish traders will want to see Alibaba make a higher high above $174.15 for full confirmation.

Alibaba has multiple gaps above all the way up to the $290 level and because gaps fill 90% of the time it is likely the stock will trade up into the highest gap at some point in the future. The closest gaps traders will need to watch first are between $178.43 and $181.34 and between $193.36 and $194.82.

Alibaba is trading slightly above the eight-day EMA but almost 6% below the 21-day EMA which is short-term bullish. For confidence in a larger reversal to the upside, bulls will want to see Alibaba’s stock regain support at the 21-day EMA and for the stock to trade above it long enough that the eight-day crosses above the 21-day.

Alibaba is trading well below the 200-day simple moving average which indicates overall sentiment is bearish.

  • Bulls want to see big bullish volume come in and drive Alibaba’s stock up over resistance at $170.87. If the stock can regain the level as support it has room to move up to $179.15, which would put it in line with a gap. It should be noted the lower gap left behind on Monday is likely to fill before Alibaba makes a continuation move north.
  • Bears want to see big bearish volume drop Alibaba down below support at the eight-day EMA and through the bottom of the lower gap back toward support at $155.50. If the stock is unable to hold the levels as support it could fall toward $147.95.

Photo: Courtesy Alibaba