Chart of the week – Alibaba (BABA)
Alibaba (BABA) potential bearish climax at key support
Medium-term technical analysis
Time stamped: 1 Aug 2021 at 2:00pm SGT
Source: CMC Markets
- At the start of last week, the share price of Alibaba (BABA), its US ADR listed on the New York Stock Exchange has gapped down by -13% to print an intraday low of 179.71 on 27 July due to an indirect negative feedback loop triggered by new regulatory measures being imposed on online China based education firms that saw “indiscriminate” selling across China e-commerce platform and big data technology related stocks due to a heightened regulatory overhang.
- BABA has managed to trim at least 50% of its intra week losses to end with a weekly close of -5.5% (195.17) for the week ended 30 July. Interestingly, this positive observation has taken place right at a key long-term pivotal support zone that confluences with several bullish technical elements.
- Firstly, last week’s price action has formed a weekly bullish reversal “Hammer” candlestick pattern after a retest on its long-term secular ascending trendline in place since 9 February 2021 swing low of 59.28. Secondly, the weekly bullish “Hammer” candlestick pattern has also been formed right at a significant Fibonacci cluster zone (the 50% retracement of the on-going long-term secular uptrend from 9 February 2016 low to 27 Oct 2020 current all-time high & the 0.764 expansion of the major down move from 27 October 2020 high to 24 December 2020 low projected from 16 February 2021 high). Thirdly, the MACD histogram indicator, a gauge on price action momentum has traced out a long-term bullish divergence signal in place since early March 2021 while corresponding price actions continued to show “lower lows” which suggests downside momentum has started to ease.
- Also, the current major downtrend from 27 October 2020 high to 27 July 2021 low within its long-term secular uptrend phase in place since 9 February 2016 low is the steepest in terms of magnitude and timing; -44% for 9 months versus the previous major downtrend from 5 June 2018 high to 22 December 2018 low; -38% for 6 months. Hence given the aforementioned positive technical elements, last week’s price action of BABA may indicate a bearish climax scenario that suggests the potential end of a major bear market cycle.
- Watch the 179.70 key long-term pivotal support and break with a weekly close above the 211.60 intermediate resistance may trigger a multi-week up move to target the next resistance at 245.65 in the first step. On the flipside, a weekly close below 179.70 invalidates the recovery scenario for an extension of the major down move phase towards the next support at 130.10 (the major swing low areas of October/December 2018 & close to the 76.4% Fibonacci retracement of the long-term secular uptrend from 9 February 2016 low to 27 Oct 2020 current all-time high).
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