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Alibaba's Technical Breakdown

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Alibaba's Technical Breakdown

Shares of Alibaba Group Holding Ltd (NYSE: BABA) suffered a technical breakdown last week that could be a bad sign for shareholders in the near term.

Hitting The Ground Running

After opening at $92.70 on its first day of public trading on September 19, 2014, Alibaba initially traded in a range between $82 and $95 over its first month. However, in late October, the stock started to take off. The stock made a brief four-day pause at the $100 level, then continued its climb as high as $120 by mid-November.

Related Link: Amazon And Alibaba? They're Not Even Close To Being Peers

The Pennant

After peaking at $120, Alibaba spent the next two months drifting lower. The stock found support near the $100 level in early December and again in early January, forming the familiar technical “pennant” formation on its chart.

In the second week of January 2015, Alibaba broke below $100 (the support line of the pennant), and barely reclaimed the $100 level on Tuesday -- it the closed the session at $100.04. Without a long trading history to draw from, the only clear technical support level currently in the chart is the all-time low around $83.

One Potential Reason For The Breakdown

Alibaba’s Q4 earnings report is due out in February, but one possible explanation for the stock’s breakdown could be anticipation of an event even farther into the future. In March 2015, Alibaba’s first big lock-up period expires, and more than 429 million shares of insider-held stock will become unlocked and available to trade on the open market for the first time.

Lock-up expiration has plagued other recent blockbuster IPOs as well. Facebook Inc (NASDAQ: FB) and Twitter Inc (NYSE: TWTR) both produced negative returns for shareholders in their first year of public trading, and insider selling played a large role in their slides.

 

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