Alibaba Group Holding Ltd: BABA Stock Chart is Suggesting a New Bull Market has Commenced
BABA stock: Setting its Sights on Higher Prices
Alibaba Group Holding Ltd (NYSE:BABA) is the ecommerce juggernaut founded by the infamous lover of Forrest Gump, Jack Ma. For the first time in history, a mainland China businessman is to appear on the cover of Forbes magazine. Ma’s tale is a rags-to-riches story involving a humble man who uses his wealth in philanthropic ventures. What’s not to love about him and the company he founded? I have personally bought a few items from his company and I have been pleased with the experience. The prices are great and the service is exceptional. Alibaba’s stock valuation might have been a concern when the company first went public and capped price appreciation, but the recent developments in BABA stock are pointing towards higher prices.
The price chart of an investment is my single most reliable tool in deciphering trends and deciding whether the investment is applicable to my strategy.
The following Alibaba stock chart illustrates the pattern that has set the bullish outlook in motion.
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 a 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.
Baba confirmed the double bottom with a breakaway gap. Breakaway gaps rarely get filled and almost always signal that a new trend has started. It is not uncommon for these gaps to develop around major turning points, as many traders are using charts to decipher trends and see the same patterns emerging.
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.
The following chart illustrates the moving average cross that reaffirms the bullish bias of Alibaba stock.
Chart courtesy of StockCharts.com
On April 25, 2016, BABA stock generated a golden cross. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. Traders use this signal to confirm that a bull market is on the horizon. It is always wise to trade in the direction of this signal. A neutral or long position is warranted. There is little reason to hold a short position after this signal is generated.
The golden cross created the necessary tailwind to complete and execute the double bottom reversal pattern. When I view moving average crosses, I see them as a stamp of approval. I use them to reaffirm my trading bias.
The following Alibaba stock chart illustrates the bullish trading action on a one-hour chart.
Chart courtesy of StockCharts.com
The chart above illustrates the bullish price action that followed the golden cross. The impulse legs (highlighted in green) are followed by consolidation waves (highlighted in purple). Bullish price charts are littered with this type of price action.
The uptrend line is produced by connecting the troughs. A simple trend line is a trader’s most important tool. When shares are trading above a trend line, it is bullish, and when shares are trading below the trend line, it is bearish. If I were long on BABA stock, I would set my stop just below this trend line and ride that trend for however long time permits.
The Bottom Line on BABA Stock
I have reason to believe that Alibaba stock has just put in a trend reversal. The reversal is the beginning of a new trend higher. The path of least resistance is toward higher prices. My bias will remain bullish for as long as BABA stock is trading above the horizontal resistance.
Alibaba stock is not the only name we cover in the tech space. Tech stocks offer an opportunity for above-average growth. If growth is your investment mandate, I strongly suggest you check out the following report: “Big Tech Stocks Poised for More Growth.” Click HERE to access this report.
