BABA Stock: Lift Off
Alibaba Group Holding Ltd (NYSE:BABA) stock surged by 13.29% following an investors day conference where the company announced that it expected this year’s fiscal revenue to grow between 45%-49% over last year. This bullish news left a significant price gap on the Alibaba stock chart as the share price soared.
My readers and I were not the least bit surprised by this bullish move because on May 16, I outlined key developments on the BABA stock chart that were suggesting that the investment was set to appreciate. I even had the audacity to suggest that $180.00 was a plausible price objective. So on June 8, when the share price leaped by $16.70, I was pretty excited to say the least, because I know that this type of price action carries quite a considerable amount of implications. These implications serve to support my bullish view, and reinforce the potential price objective that I laid out.
Before I move forward, I need to point out that my views on Alibaba stock were created by analyzing the company’s stock chart. This method of investment analysis is known as technical analysis, and I have using this method for nearly two decades to create investment strategies. The indications on the stock chart are why I first turned bullish on BABA stock in August of last year, and it is why I continue to hold a bullish view on this investment.
The following Alibaba stock chart illustrates the price pattern that continues to suggest that a potential price objective of $180.00 is warranted.
Chart courtesy of StockCharts.com
This price chart shows the trading action since inception. Three months after BABA stock began trading publicly, it forged a significant top at $120.00. This level marked a high that was followed by a significant decline, where Alibaba shares lost 52.33% of their value before a bottom was finally forged. It took approximately 2.5 years to return to this level, and BABA shares broke above this level without even blinking.
This type of price action is very special to say the least, and it was the focus of my previous publication, “Alibaba Stock Is Moments Away from Lift-Off ,” where I outlined the bullish implications of a stock that breaks above its previous all-time high. These implications are especially magnified when this previous all-time high was set shortly after the company began trading on the open market.
This type of price action creates a vacuum. This vacuum is created when bullish investors are reluctant to sell their positions because all of them are sitting with gains in their investment accounts, while bearish investors are sweating because all of them are sitting with losses in their accounts that continue to grow.
Demand for Alibaba shares is created by these bearish investors’ need to cover, which coincides with new demand from bullish investors chasing momentum. This causes a serious imbalance with supply and demand. This imbalance is responsible for massive runs to the upside that have a tendency to spawn under such conditions. The BABA stock chart clearly shows that the stock price broke above the previous all-time high in May 2017. In June, the stock price really began to accelerate.
In my previous publication, I outlined that such patterns can be used to set a potential objective. This objective is obtained by taking the depth of the pattern below the previous all-time high and extrapolating that value above it. This method creates a potential target for BABA stock at $180.00. It is worthy to note that using this method to generate a potential price objective has turned out to be quite conservative when I applied it to other investments that had similar price patterns.
The following Alibaba stock chart focuses on the significance of the gap in price.
Chart courtesy of StockCharts.com
The price chart above focuses on the price gap as an indicator, and there are two significant price gaps that are highlighted on the price chart above.
The first gap is a breakaway gap, and it served to suggest that that a new bullish trend was born. This new bullish trend was the result of completed reversal pattern known as a double bottom. This pattern was officially completed when the stock price closed above the green horizontal trend line highlighted on the chart above. The price gap served to reinforce the view that a significant bottom had just formed.
The second gap is a continuation gap, which serves to suggest that the bullish trend has only reached its midpoint and higher stock prices can therefore be expected. This gap occurred a few short days after the previous all-time high was penetrated and created the perfect environment for an acceleration in the stock price. The 13.29% price gap will increase pressure on the bears, resulting in further gains as they scramble to unwind their positions.
Both of these price gaps have occurred as price has crossed over a significant level of resistance, which illustrates that BABA stock adheres to the rules set out by technical analysis. The continuation gap is reinforcing the price objective at $180.00, which may prove to be too conservative, but let’s get to this objective first before we draw any further conclusions.
Bottom Line on Alibaba Stock
Alibaba stock surged following great guidance at its investors conference. This surge in price left a continuation gap on the stock chart, suggesting that this bullish run in BABA stock has further room to run before it is exhausted.