The Bull, Bear Case For Alibaba Stock After China Banks Hold Lending Rates Steady

Zinger Key Points
  • Chinese banks held their lending rates unchanged on Monday, boosting Alibaba higher.
  • For a new uptrend to confirm, the stock will eventually need to print a higher low.

Alibaba Group Holdings, Ltd BABA was trading slightly higher in the premarket on Wednesday after closing Tuesday’s trading day up 3.33%.

The Chinese e-commerce and tech giant reversed upwards starting on Monday after Chinese banks held their lending rates unchanged.

The move came after the country’s central bank cut its reserve requirement rate by .25% last week, indicating the government wants to increase lending to bolster the economy, according to Bloomberg News.

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Alibaba’s bullish reaction to the news caused the stock to rebound a total 5.3%, although the stock is currently still trading in a downtrend. If Alibaba continues higher on Wednesday, however, the downtrend will be negated and an uptrend could be on the horizon.

An uptrend occurs when a stock consistently makes a series of higher highs and higher lows on the chart.

The higher highs indicate the bulls are in control while the intermittent higher lows indicate consolidation periods.

Traders can use moving averages to help identify an uptrend, with rising lower time frame moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term uptrend.

Rising longer-term moving averages (such as the 200-day simple moving average) indicate a long-term uptrend.

The Alibaba Chart: For the current downtrend to be negated, Alibaba will need to rise above $84.16, which is a likely scenario according to the premarket price action. For a new uptrend to be confirmed, Alibaba will eventually need to retrace lower to print a higher low above $79.48, which is Monday’s low-of-day.

  • On Tuesday, Alibaba regained the eight-day exponential moving average (EMA), which is a bullish sign. Bullish traders want to see the stock rise to trade above the 21-day EMA over the next few days and if the stock can regain that level and trade above it for a period of time, the eight-day EMA will cross above the 21-day, which would give bullish traders more confidence going forward.
  • Although the 50-day simple moving average (SMA) is trending above the 200-day, indicating a bull cycle is in play, Alibaba is currently trading under the 200-day, which is bearish.
  • If Alibaba remains under the 200-day the 50-day will eventually cross under the larger moving average, which would cause a death cross to form.
  • Alibaba has resistance above at $83.84 and $89.95 and support below at $77.87 and $73.28.

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