BABA stock: This Rival Has Even More Upside
Alibaba Group Holding Ltd (NYSE:BABA) stock has just turned a corner as shares have finally turned positive for the year after a slow start.
Alibaba stock is currently up 18% year-to-date. There is no denying that e-commerce is a fruitful endeavour for those who are able to succeed in a space that has very little barrier to entry. The world is your consumer, and the Internet has helped many people join the millionaires’ club. If I cannot start one of these companies, perhaps I can own a few shares in hopes of having a chance at riches.
BABA stock is a great name and—there is no doubt—an opportunity to make investment returns, but the investment returns I seek must come from a smaller, less-known name. Has anyone heard of Vipshop Holdings Ltd – (ADR) (NYSE:VIPS) stock? Then perhaps I am off to a good start.
A Better Pick than Alibaba Stock?
Finding a small-cap stock within the same sector is a good start, and an important criteria that needs to filled.
Vipshop stock has market capitalization of $9.0 billion, versus the $239.0-billion market capitalization of Alibaba stock. Vipshop stock is valued at a fraction of Alibaba stock, and probably rightfully so if we base this on size alone. Having a small market cap has many benefits for an investor. It leaves room for price appreciation as lower-cap companies have less of a following and tend to outperform their large-cap counterparts.
The next—and most—important criteria is that the investment in question has a bullish price chart. The following chart illustrates the bullish developments that are developing.
Chart courtesy of StockCharts.com
VIPS stock has been trading with a downward bias since share price peaked at $30.00 in April 2015. Two defining factors confirmed the bearish trend: the downtrend line and the “death cross.”
A downtrend is a trend line that is created by connecting the peaks on a price chart. While the price is contained beneath this trend, the bias is bearish. The trend can be easily identified by the staircase pattern that forms from the upper left of the chart and moves to the lower right.
The downtrend line was broken to the upside on August 9, 2016. Trading above the downtrend line is a bullish signal, and spells the end of the mini bear market.
In July 2015, VIPS stock generated a death cross. A death cross is a bearish indicator that is generated when a faster-moving 50-day average crosses below a slower-moving 200-day moving average. This event is used to signal that a bear market is on the horizon, and it pays to take notice of this indicator. Share price fell 45% after this signal was generated.
This same indicator is now converging, and a cross would generate a “golden cross.” A golden cross is the exact opposite of a death cross, and would signal that a bull market is on the horizon.
Both factors that defined the downward movement in price have either ended or are on the verge of reversing. This alone is reason to be bullish, but there is one more piece of the puzzle that pushes the envelope and has me overly excited about this position.
The following chart illustrates the “double bottom” reversal pattern that was recently generated.
Chart courtesy of StockCharts.com
On August 12, VIPS stock confirmed a double bottom when the share price was closed above $15.00. A double bottom is a reversal pattern that appears at the end of a downtrend. It is marked by two consecutive troughs, separated by a peak in between. The pattern is confirmed when shares close above the peak that separates the two bottoms.
This pattern is very significant, as it confirms a trend reversal and projects a preliminary price objective of $19.50.
These three signals are confirmation that the trend has indeed reversed to the upside. A real bullish tailwind exists, and the potential for VIPS stock looks bright.
The Bottom Line on BABA Stock
I like BABA stock, but I love VIPS Stock. The small-market capitalization combined with the bullish chart sets up an investment that meets my investment objectives. Multiple signals have either confirmed or are on the verge of confirming the bullish premise. Vipshop stock looks set to outperform Alibaba stock.