Alibaba Stock: Great Start
Little time has passed since my last article that was published on December 30, 2016, but a lot has happened with regards to the Alibaba Group Holding Ltd (NYSE:BABA) stock price. The critical situation on the BABA stock chart that I outlined in that report has finally resolved itself, and for the bulls, this is a time to rejoice, because the bullish landscape that developed in the middle of last year is still intact.
For those not familiar with my style of investment analysis, I use past price and volume data as a signal and indicator that helps me discern trends and forecast future prices. This is not something that is proprietary or a figment of my imagination. This style of investment analysis is called “technical analysis.” It has been around for ages and has stood the test of time.
The signals and indicators on the BABA price chart first suggested that a bullish view was warranted in August, and the same price chart suggested that BABA stock needed to rise in short order to preserve this bullish view.
The following chart illustrates the developments since my last publication.
Chart courtesy of StockCharts.com
Shortly after BABA stock peaked in September 2016, the price stared drifting lower. This drift was very orderly and a downtrend line effectively captured the move lower in Alibaba stock.
The downtrend line is created by connecting the peaks on the price chart. There is no denying this bearish trend, as it is defined by lower lows and lower highs. This trend can be easily identified as the price moves from the upper left to the lower right on the BABA stock chart.
I explained in my previous report that Alibaba stock needed to increase in price in order to break this downtrend. The break of this downtrend line was tremendously important because any further price weakness would have put the entire bullish backdrop into jeopardy.
2017 started off with a bang, and BABA stock has broken above the downtrend line. This indicates that the bullish landscape is intact and higher prices are likely to follow. This is great news on all fronts because I really didn’t want to see critical support fall.
The following Alibaba stock chart illustrates the level that needed to hold.
Chart courtesy of StockCharts.com
The BABA stock chart above illustrates that in order for the bullish backdrop that was created in August to remain intact, price needed to remain above critical support.
The first level of support comes in the form of the 200-day moving average. The 200-day moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market.
When a share price is above the moving average, it is bullish, and when a share price is below this moving average, it is bearish. Traders eye this moving average, and it is not uncommon for price to find support as it approaches this level.
The second level of support was a previous level of resistance that contained the price of BABA stock in the first half of 2016. The break above this level in August is what generated the bullish backdrop in the stock. This level is critical support. If I were to define my risk in Alibaba stock, I would use this price point.
Trading back to a previous level of resistance is not uncommon, and many traders look for such an opportunity to add or be a trading position.
Both levels of support attracted the necessary buying pressure, and it is not surprising that the price of BABA stock surged higher to begin the new year.
Bottom Line on Alibaba Stock
Alibaba has started off 2017 on the right foot, and BABA stock is no longer in danger of breaking below critical support. The downtrend is broken, and as a result, I am expecting bullish price action to follow.