Alibaba Group Holdings, Ltd BABA gapped up almost 6% higher on Tuesday after the Hang Seng Index in Hong Kong closed up 5.24%.
Hopes that Xi Jinping’s government may begin to ease its strict COVID-19 restrictions amid rare protests in the country, as well as a downtick in daily positive cases had investors feeling the economic situation in China could improve.
China-based stocks have been beaten down relentlessly over the last few years, with many moving steeply lower between October 2020 and January 2022, despite U.S. stocks enjoying a bull market during those months.
Alibaba is down 75% since Oct. 27, 2020, when the stock reached an all-time high of $319.32. Comparatively, Alibaba’s closest U.S. competitor, Amazon.com, Inc AMZN has declined about 42% over that same time frame, with most of its losses suffered since January of this year.
The spike higher in Alibaba wasn’t quite enough to break the stock up from a falling channel on the daily chart in which the stock has been trading since Nov. 15. The move pushed Alibaba toward the upper trendline of the pattern, however, making it more likely the stock will break bullishly from the pattern over the coming trading days.
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The Alibaba Chart: Alibaba popped up to hit the upper descending trendline of the channel and rejected the area, indicating the stock isn’t ready to break up from the pattern. The pop higher caused Alibaba to regain the median line of the channel, which will give bulls more confidence going forward.
- If Alibaba closes the trading day near to flat, the stock will print a doji candlestick, which could indicate the temporary top is in and a retracement will be needed prior to Alibaba possibly breaking up from the channel. If that occurs, Alibaba may slide down to close the lower gap, which could be bullish.
- If the stock gains momentum later on Tuesday and breaks up from the channel on higher-than-average volume, it could indicate a larger reversal to the upside is in the cards for Tuesday. If that takes place, Alibaba may eventually fall back to test the upper trendline as support, which could provide a good entry point for bullish traders.
- If Alibaba continues to reject the upper trendline, the stock may continue to trend lower in its downtrend, which would give bears a play until the next bullish reversal indicator appears.
- Alibaba has resistance above at $83.84 and $89.95 and support below at $77.87 and $73.28.
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