Alibaba Stock Trades Dangerously Close To Confirming This Trend: What To Watch

Alibaba Group Holdings Inc. BABA was sliding over 3% on Wednesday following a key policy speech by Hong Kong leader John Lee.

The Chinese e-commerce giant climbed over 5% between Oct. 13-18 before and after Chinese President Xi Jinping unveiled his five-year agenda, which included a commitment to technology investments.

From a technical standpoint, the four-day rise was merely a relief bounce to print another lower high within the downtrend in which Alibaba has been trading since Aug. 26.

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Traders are now watching to see if Alibaba drops under the $71.40 level to confirm the trend lower is still intact, or if the stock can form a bullish reversal candlestick near that level.

The Alibaba Chart: Alibaba’s most recent lower high was formed on Tuesday at $78.64 and the most recent lower low was printed at the $71.40 mark on Oct. 13. On Wednesday, Alibaba gapped down to start the trading session and bulls appeared too weak to prop the stock up to fill the gap.

• If Alibaba falls to the most recent lower low, bullish traders will want to see the stock print a reversal candlestick, such as a doji or hammer candlestick, at that level to form a bullish double-bottom pattern.
• Alibaba may be developing bullish divergence on the daily chart, which could help the stock bounce before forming another lower low. Bullish divergence occurs when a stock makes a series of lower lows but the relative strength index fails to make lower lows, or makes higher lows.
• Alibaba has resistance above at $77.87 and $83.84 and support below at $73.28 and $68.70.