Don’t Worry, Alibaba Stock Bull Story Is Intact
Alibaba Stock Dip Is an Opportunity
A friend asked me about Alibaba Group Holding Ltd (NYSE:BABA) the other day, expressing some concern after he purchased the stock near its highs.
BABA stock is undergoing some chart exhaustion, down 7.5% over the past month and off 2.3% in the last three months, underperforming both the S&P 500 and the NASDAQ.
But my response was that it is inconceivable to expect Alibaba stock to keep ramping higher, given that the shares have nearly doubled this year.
Yes, there was some hand-holding and reassurance that the bull thesis remained intact at Alibaba, but some volatility prior to the next bull leg higher should also be expected.
For many of you, it’s well known that I have long been an Alibaba bull since the stock was trading in the $80.00 range.
Those who bought BABA stock call options when the stock was trading south of $90.00 are probably rejoicing.
Some technicians are warning traders to be careful after Alibaba stock broke below its 50-day moving average following a bearish double top at above $190.00 in November.
Chart courtesy of StockCharts.com
While the chart risk is evident for BABA stock, buyers came in and supported the stock at around $164.00–$165.00, which represents the top of the upside trade gap.
Just like other top-momentum stocks, there will always be opportunities to buy on dips, as those who added to their portfolios at lower prices decide to realize some profits.
Alibaba is no different. Just keep an eye on the $160.00 level. A renewed move back to this level could see a break below the $158.00–$150.00 levels.
Why My Bull Thesis Holds for BABA Stock
My view is that, as long as the story and incredible growth metrics behind Alibaba don’t fundamentally change, any correction in BABA stock should be viewed as an opportunity. That’s what I suggested to my friend.
Remember, Alibaba sold over $25.0 billion in goods on Singles’ Day. The buying frenzy was staggering, and it reconfirmed why Alibaba is the top e-commerce play in China, where consumer spending has become cult-like.
Of course, Chinese President Xi Jinping has also been on a mission to crack down on corruption, and this has filtered into the role of online lenders in China.
New rules from Beijing will cap the allowable interest charged on online loans. The fear is that this regulation will impact online spending in China. The policy move will probably impact Alibaba to some degree, but I doubt it will have a material impact.
Once Alibaba head Jack Ma gets his cloud business on full throttle, BABA stock will likely head towards the $500.0-billion market cap level.
Ford Motor Company (NYSE:F) just inked a three-year deal with Alibaba to look at new ways for consumers to buy and lease cars in China, the world’s largest vehicle market. The venture will make use of Alibaba cloud and big data to design a strategy. (Source: “Ford recruits Alibaba to help break into China’s electric vehicle industry,” TechCrunch, December 7, 2017.)
Analyst Take:
As I said to my friend, don’t worry about the current relapse in Alibaba stock. The bull thesis remains and investors could use dips as a buying opportunity.
