Alibaba is once again the talk of the town with its latest restructuring being the greatest that they’ve had in their entire 24-year history! Long story short they’ve decided to split into 6 units with this move being one “designed to unlock shareholder value and foster market competitiveness.”
Basically, what’s happening here is that the head of the family is telling the kids that they are all grown up now and each “child” can now venture forth (literally) to find their own way in life.
“Each of these units can pursue independent fundraising and a public listing when they’re ready”
Alibaba CEO, Daniel Zhang
In my opinion, this is a really positive catalyst for Alibaba as any new capital inflow into any of these 6 “children” will ultimately benefit the parent company.
This move also has its benefits in the sense that any further regulatory action against Alibaba may not impact the group as a whole. For example, restrictions in data/tech may not affect the operations of Cainao.
Despite such bullish catalyst, the price action of Alibaba continues to reject their $120 key resistance level.
Are we set up for a bull run from here or will we test our $60 October 22 lows again? Let’s take a look at what the charts say.
*Disclaimer, a sizable amount of my portfolio in Alibaba and I am vested in the stock at the time of writing.
Briefly, for those unfamiliar with the struggles of Alibaba, this graphic from Reuters sums it up:
Alibaba’s Weekly Chart reveals…
In my most objective analysis of Alibaba, I must say that if we don’t rally from here, the road ahead will be even harder for value investors who are still holding the stock.
If we take a step back and look at the technicals from the weekly candlesticks, we can certainly deduce the following:
We are currently trading within the range of $80 – $120. If we break above the $120 key resistance level, all investors can cheer. However, if we fail to trade within this range and break below it, based on the fundamentals of trendlines, the next point where we would find structural support would be at $60 which also coincidentally happens to be the lows of 2015. (Is it ever a coincidence?)
The big questions still remains, will we break $120?
Alibaba’s daily mov(ing average)
When we look at the dynamic support/resistance levels, we can see that the Deathcross formed back in Feb of 2021 (omg we’ve been HODL-ing for 2 years already! Good job everyone!) and only recently did the long-awaited Golden Cross form in January this year (Green Circle).
A Golden Cross is a marvel-DC cross over blockbuster where … just kidding. A Golden Cross is one of the most fundamental technical analysis indicators where the 50 Day Moving Average (Blue Line) crosses over the 200-Day Moving Average (Gold Line).
This is traditionally one of the strongest signs that the bear run is over and that the bull rally is once again ready to begin.
Another sign that we are seeing increased bullishness is how the price action of Alibaba has consistently adhered to the 200 Day Moving average as a key dynamic resistance level having failed to break past it twice in the past (2x Red Circles). While the most recent rally saw the price action break past this level only to retreat below it again, we are now seeing renewed strength as the stock consolidates at the $100 key psychological support level.
Based on the Moving Average indicator, I speculate that Alibaba may soon break above its $120 key resistance level.
Does Alibaba have Momentum?
While there are many indicators for momentum, I find the Relative Strength index (RSI) one that’s easy to read and understand.
What we want to see in the RSI is a divergence in the sense where prices do not move in line with momentum. For a bullish divergence to form, what I’m looking for ares points where the RSI falls below 30 and compare that against the increased price of the stock.
In this case, we compare the RSI at two points in recent time where its oversold (indicated in the Red Circles) against their respective price points (indicated in the Green Circles)
What we see here is bullish divergence in the sense that we see 2 points where the stockk was oversold yet at the second point, the market was able to accept the stock at a higher price (Blue Line) than before yet still considering it to be oversold.
This further adds to my opinion that Alibaba may soon break past $120.
A matter of time?
We’ve been at this point many times in the past where we ask ourselves if things are different this time around. In my opinion, the Alibaba split along with the increase in momentum that I’ve identified in the charts do compel me to speculate that it is indeed a matter of time before we break $120.
Furthermore, we do see China as a whole start to relax their aggressive stance against tech and in some sense, open up more to capitalism (i.e. even Elon Musk plans a China visit).
It is very difficult to see further downside from where we are now given that at present levels, we are at about 2/3 off from our all-time highs of $320. Let’s hope that the rest of 2023 would be kinder to us Alibaba investors than 2022.
