BABA Stock: Eyeing the Uptrend
I like Alibaba Group Holding Ltd (NYSE:BABA) stock for one reason in particular: the stock chart is bullish. I find sometimes that the simplest reasons are the best, and this is definitely one of those times. It’s the same reason I buy products online, because it is just easier and thus, much simpler.
I frequent many e-commerce sites, and I have come to like AliExpress.com and Alibaba.com because they have huge selections of products at incredible rock-bottom prices. These e-commerce sites put even the likes of dollar stores to shame. I have managed to buy things, shipped directly to my house, at under a dollar. This seems preposterous, but I assure you its true, and I have done it.
I have also had great success analyzing investments using the stock chart. My strategies are systematic, and they require specific entry and exits points, as well as signals to confirm trends. Technical analysis has been the only tool I have been able to use that is instrumental in setting aside any emotional biases that I might have toward a potential investment.
The following chart illustrates why I am bullish on BABA stock.
Chart courtesy of StockCharts.com
On August 10, 2016, BABA stock confirmed a double bottom. A double bottom is a reversal pattern that appears at the end of trend. It is marked by two consecutive bottoms, separated by a peak in between. The pattern is confirmed when shares close above the peak that separates the two bottoms.
Double bottom patterns are also of great benefit because, not only do they signal a change in trend, but they also produce a possible price objective. This reversal pattern projects a potential price target of $110.00 on Alibaba stock, and this level was just attained in late September 2016.
The double bottom pattern was confirmed in dramatic fashion when the price surged higher. A large gap was left on the Alibaba stock chart, and this is known to traders as a breakaway gap. Breakaway gaps rarely get filled, and almost always signal that a new trend has begun.
These gaps commonly occur at strategic price points because many traders and investors are looking at the same data generated from the price chart. These gaps are caused by the enthusiasm that was created after BABA stock closed above the horizontal resistance marked by the peak of the double bottom pattern.
There is a level of resistance on the chart above that is marked by the all-time high in BABA stock. This would be a logical place for Alibaba stock to take a breather if the trend higher is to continue.
The following Alibaba stock chart illustrates the bullish trend that has created new 52-week highs
Chart courtesy of StockCharts.com
The trend on the Alibaba stock chart above is orderly and contained. The price action is bullish, as impulse waves and consolidation waves pave the way higher for the share price. The price action is supported by the uptrend line.
The uptrend that has developed is clear as day, and it is defined by the trend line (highlighted in blue). This line is created by connecting the valleys on a price chart. An uptrend is defined by higher highs and higher lows. It can easily be identified as the price moves from the lower left to the upper right. This is a clear example of bullish price action. Shares will continue to trade with a bullish bias for as long as this trend remains intact.
This uptrend line is also how I would manage my risk. If BABA stock trades below this trend line, I would effectively exit or reduce my position, as this would signal that the current trend higher has changed. Just like bullish signals are not to be ignored, neither are bearish signals, and a break below the uptrend is a bearish one.
The Bottom Line on Alibaba Stock
I am bullish on BABA stock because the chart has painted a bullish backdrop for which I can trade off. My bias on Alibaba stock will continue to be bullish for as the long as the signals that are generated from the stock chart support this premise.