PreMarket Prep Stock Of The Day: Alibaba

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

“Buy the dip” doesn't work in all stocks, all of the time, although it may seem that way. Where it hasn't been working is Chinese companies listed on U.S. stock exchanges.

Perhaps the most heavily traded of those issues is Alibaba Group Holdings Ltd. BABA, which is the PreMarket Prep Stock Of The Day.

Fall From Grace: Long before the Chinese government began cracking down on its companies deriving profits from the internet, Alibaba was off its all-time high made in October at $319.32.

A combination of the cancellation of a spinoff and disappointing results from Singles Day instigated a retreat to the $250 area in mid-December.

Once the Chinese began imposing restrictions and fines on companies, the bottom fell out in its share price and is doing so. Every rebound off what seems to be a major low has been sold and hard.

Now That Is The Bottom: On Monday morning, the issue had what seemed to be another capitulation move to the downside. In a wild session, the issue swooned from its Friday close ($157.96) to $152.80 and responded to close in the green at $161.05.

That low coincided with its August 2019 low ($151.85). On Tuesday, investors were convinced they missed the bottom and aggressively purchased shares. On the day, it peaked at $174.15 and ended the session higher by over $10 at $171.70. That was nearly $20 off Monday’s low, with not much changing on the fundamental front.

Buyers Remorse: Investors that chased the rally quickly found themselves in the hole. On Wednesday, the issue fell to $169.10, and more of the same on Thursday falling to $165.24.

More Bad News: Before the open, a WSJ report titled "China Plans to Ban U.S. IPOs for Data-Heavy Tech Firms" signaled more trouble for new companies planning to list on U.S. exchanges, and also sent shivers to investors currently long Chinese companies.

PreMarket Prep Take: On Friday’s show, the issue was discussed in depth as to whether or not the retreat was a buying opportunity. Dennis Dick, who is already long the issue stated, “It is tempting to try and buy the dip, but if I do, I will lean on the low of the move for an exit on the downside.”

The full discussion on the issue from Friday’s show can be found here:

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