Alibaba Regains Important Bellwether Indicator: Is It A Trap?

Alibaba Group Holdings, Ltd BABA traded flat Monday and closed the session down 0.11% after rallying 8% on Friday to close that trading session above the 200-day simple moving average (SMA).

The 200-day SMA is an important bellwether. Technical traders and investors consider a stock trading above the level on the daily chart to be in a bull cycle, whereas a stock trading under the 200-day SMA is considered to be in a bear cycle.

The 50-day SMA also plays an important role in technical analysis, especially when paired with the 200-day. When the 50-day SMA crosses below the 200-day SMA, a death cross occurs. When the 50-day SMA crosses above the 200-day, a bullish golden cross takes place.

A death cross occurred on Alibaba’s chart on June 23, which signaled a longer-term bear cycle could be in the cards. If the stock continues to trade above the 200-day SMA, a golden cross could be on the horizon.

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The Alibaba Chart: If Alibaba continues to trade above the 200-day SMA and a golden cross forms, the death cross that occurred a few weeks ago will serve as a bear trap. The big bullish volume that drove Alibaba up above the area also indicates a longer-term bull cycle could be in the cards.

• On Monday, Alibaba attempted to break up above Friday’s high-of-day and failed, which may indicate the local top has occurred an
• d a larger retracement will take place on Tuesday. If that happens, bullish traders want to see the stock hold above the 200-day SMA and bounce up from the level.
• Bearish traders want to see big bearish volume come in and knock Alibaba back under the 200-day, which could suggest the recent bullish price action was a bull trap.
• Alibaba has resistance above at $96.17 and $104.44 and support below at $89.95 and $83.84.

Photo via Shutterstock.