The Technical Setup Into Alibaba's Q2 Earnings Release

With Alibaba Group Holding Ltd BABA set to release fiscal second-quarter earnings Friday morning, traders are taking one last look at the stock’s chart for any indication of what to expect from Alibaba and how to play the stock following its report.

A Rough Year

Alibaba stock is down about 30 percent in the past three months on concerns about the ongoing trade war and Alibaba’s rising costs. Despite consistently reporting revenue growth above 50 percent in recent quarters, Alibaba has been caught in a vicious technical downtrend since hitting an all-time high of $211.70 back in June.

While the overall S&P 500 has been relatively weak in the second half of the year, Alibaba has severely lagged the market. Since July 1, Alibaba is down 23.4 percent compared to a mostly flat return from the S&P 500. That lag continued in October. Alibaba is down 13.4 percent over the past month compared to a 6.6 percent drop for the S&P.

The good news for Alibaba investors is the stock recently found support at the $130 level, bouncing back up above its 52-week lows earlier this month to above $142.

Unfortunately, the near-term strength should be treated with caution. Alibaba experienced a 50-day/200-day simple moving average “death cross” in August, and both moving averages have served as resistance since that time.

Key Technical Levels

If Alibaba beats earnings expectations, the first potential level of resistance would be the $150 level. In addition to being a key psychological trading level, tests of $150 failed on both Oct. 16 and Oct. 22 when the stock peaked at $149.76 and $150.20, respectively.

Alibaba shares have a lot of air under them to the downside. If the company misses expectations, the stock may not find support until it has filled the gap created on its chart when it dramatically raised its guidance back in June of 2017. To fill that gap, Alibaba stock would need to trade down to around the $125 level, which served as resistance prior to the gap-up.

At time of publication Thursday afternoon, Alibaba was trading around $150.66.

Disclosure: The author owns shares of Alibaba.

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