Where Will Alibaba Find Support?

By: Wayne Duggan

Following another impressive quarter of revenue growth and a solid Singles Day performance, Alibaba Group Holding Ltd (NYSE: BABA) shareholders find themselves at a difficult crossroads. Despite consistently impressive company fundamentals, the stock has fallen off since Donald Trump was elected president. In fact, in the four days after Election Day Alibaba shares plummeted more than 12% (though they’ve since gained about half of it back).

At this point, shareholders of the Chinese internet stock are asking themselves whether the stock has bottomed out for now, or whether it will continue to fall from the nearly two-year high it hit in September.

Trump Versus China

Alibaba’s stock has been under pressure since Trump’s election because his proposed tariffs on Chinese imports could take a significant bite out of Alibaba’s U.S. sales and potential for U.S. growth. Trump repeatedly took a hard stance against China throughout the campaign, calling for a 45% tariff on Chinese goods.

Clearly Trump has rattled the market’s confidence in Alibaba, but CEO Jack Ma believes Trump is too savvy of a businessman to actually follow through on his promises.

“He is a smart person, he will adjust. He will never neglect the relationship between China and America,” Ma said following the election.

State-run Chinese newspaper the Global Times has echoed Ma’s sentiment that Trump’s promises were “merely campaign rhetoric,” calling Trump a “shrewd businessman.” According to the report, a trade war between the U.S. and China would result in disastrous consequences for Trump and for the economies of both countries.

“The new President will be condemned for his recklessness, ignorance and incompetence and bear all the consequences,” the Global Times report reads.

Sparkling Fundamentals

While U.S.-China relations are dragging down Alibaba’s share price like a stone, you’d never know it by looking at the company’s impressive growth numbers. In Q3, Alibaba reported a 47% year-over-year revenue jump, its second consecutive quarter of greater than 45% growth.

In addition, Alibaba just reported $18 billion in gross merchandise value for the Chinese Singles Day holiday, up 32 percent from last year’s numbers. Singles Day sales in China far exceed U.S. Black Friday sales.

A Technical Lifeline

Following a more than 5% intraday dip on November 14, Alibaba stock may already be approaching its bottom. The stock gapped up from around $87.50 to above $91 back in August following its Q2 earnings reports. Technical traders know that stocks tend to fill in gaps over time.

After the election triggered the Alibaba sell-off, traders may have looked to the $85-87 region as their best buying opportunities. Not only does a dip to that range fill the August gap, $85 served as previous resistance for the stock throughout late 2015 and the first half of 2016. Finally, Alibaba’s 200-day simple moving average has been support for the stock since March, and it currently sits at $84.84.

However, if the stock breaks below $85 in coming weeks, traders will be looking for Alibaba to find support at its 52-week low in the $75 area.

Disclosure: the author is long BABA.

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