BABA Stock: Target Has Been Attained, Time to Act
I have mentioned in numerous publications that the price action on the Alibaba Group Holding Ltd (NYSE: BABA) stock chart is suggesting that $180.00 is a viable price objective for this investment, and this is exactly the reason why I am focusing on BABA stock today; on September 18, that level was met. In this article, I will outline how I produced this price objective and its repercussions now that it has been met.
First, let me begin with the method I employ to generate my views on an investment. This method of investment analysis is called technical analysis and it is predicated on the notion that historical price and volume data points can be used to forecast what the future may bring. This may sound like a far-fetched idea but when this method of analysis is applied correctly, the results have been outstanding. I am pretty sure that a few of my loyal followers can attest to the value this method of analysis can provide.
The following Alibaba stock chart illustrates the dynamics that suggested that $180.00 was a viable price objective.
Chart courtesy of StockCharts.com
In May of this year, Alibaba stock created a new all-time high by breaking above the previous all-time high that was established in November 2014. When this event occurred in May, I stated that this feat reinforced and reaffirmed any and all bullish views on this investment.
Breaking above a previous all-time high is a bullish feat. This feat is magnified when that previous all-time high was set shortly after the company began trading publicly. This year, there have been many investments that have shared this exact characteristic. Two examples of such stocks are Shopify Inc (NYSE: SHOP) and Applied Optoelectronics Inc (NASDAQ: AAOI).
I originally stumbled upon this phenomenon watching Facebook Inc (NASDAQ: FB) and it is not part of the repertoire of bullish price patterns I look for in a compelling investment. If you’re not aware of these investments, let me briefly state that once the previous all-time high was breached, an epic run towards higher stock prices followed.
The $180.00 price objective, which is the focus of this publication, was obtained by taking the depth of the pattern below the previous all-time high and extrapolating that value above it.
On its own, this objective is just preliminary because investments displaying similar characteristics have a tendency to blow right past it, but this price pattern was not the only thing that was suggesting that $180.00 was a potential price objective.
The $180.00 price objective was also being suggested by the price action on the following Alibaba stock chart.
Chart courtesy of StockCharts.com
This Alibaba stock chart price focuses on the gaps as an indicator. There are two distinct gaps on this stock chart and both are significant but have different meanings.
The first gap occurred in August 2016, and it is labeled as a breakaway gap. Breakaway gaps rarely get filled and almost always indicate that a new trend has begun. This gap occurred at a very significant level of price resistance that served to complete a technical pattern, indicating that BABA stock had bottomed and that a new bullish trend was born.
The second gap occurred in June 2017, and it is labeled a continuation gap. Continuation gaps mark midpoints in a trend. Applying this midpoint to project a price objective also produces the infamous $180.00 price objective. This gap occurred shortly after the previous all-time high was breached, reinforcing the notion that higher prices were on the horizon.
Both of these gaps occurred as Alibaba stock crossed over significant levels of price resistance. This illustrates that BABA stock adheres to the rules set out by technical analysis, which adds further credence to the $180.00 price objective produced by the continuation gap.
The fact that two metrics produced the same price objective is something that is not to be ignored because there is no such thing as a coincidence. So, even though the trend looks like it is still intact, I could easily foresee a correction occur off of this level. Ignoring this price objective outright would stand against the disciplined approach to investing that I preach.
Alibaba stock has attained the price objective of $180.00 that was suggested by two distinct metrics. Whether or not this level will act as a level of price resistance remains to be seen, but acting appropriately is always the best course of action. Setting stops, trimming a position, or even stepping back all together is not out of the question. Nobody ever lost money taking a profit.