Alibaba Group Holdings Ltd - ADR BABA and Nio Inc - ADR NIO were trading near to flat on Friday, holding up comparatively well to the general market, which had seen the S&P 500 tumble 7% since the market opened on Tuesday.
Alibaba competitor Amazon.com, Inc. AMZN was also showing some strength, trading mostly sideways on lower-than-average volume.
All three stocks started the trading day with inside bar patterns on the daily chart. An inside bar pattern indicates a period of consolidation and is usually followed by a continuation move in the direction of the current trend.
An inside bar pattern has more validity on larger time frames (four-hour chart or larger). The pattern has a minimum of two candlesticks and consists of a mother bar (the first candlestick in the pattern) followed by one or more subsequent candles. The subsequent candle(s) must be completely inside the range of the mother bar and each is called an "inside bar."
A double or triple inside bar can be more powerful than a single inside bar. After the break of an inside bar pattern, traders want to watch for high volume for confirmation the pattern was recognized.
- Bullish traders will want to search for inside bar patterns on stocks that are in an uptrend. Some traders may take a position during the inside bar prior to the break while other aggressive traders will take a position after the break of the pattern.
- For bearish traders, finding an inside bar pattern on a stock that's in a downtrend will be key. Like bullish traders, bears have two options of where to take a position to play the break of the pattern. For bearish traders, the pattern is invalidated if the stock rises above the highest range of the mother candle.
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The Alibaba Chart: Alibaba’s inside bar pattern is neutral because although Friday’s price action is taking place at the lower range of Thursday’s mother bar, the stock could be consolidating under the 200-day simple moving average (SMA). If Alibaba continues to consolidate sideways, the likelihood of the stock breaking up above the 200-day SMA becomes greater.
Alibaba has resistance above at $89.95 and $96.17 and support below at $86.29 and $83.84.
Nio has resistance above at $14.31 and $16.75 and support below at $11.38 and $9.48.
Amazon has resistance above at $89.03 and $90.77 and support below at $85.87 and at $80.
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