Much has been written recently about China's ongoing approach to technology companies in general. Also, global media have followed Beijing's longer but no less public crackdown on once-talked-about entrepreneur Jack Ma and the Asian e-tail juggernaut he founded, Alibaba (NYSE:).
Since November last year, when Chinese regulators abruptly suspended the $37 billion IPO of Ma's Ant Group, Alibaba's affiliate company, the value of publicly traded Alibaba has fallen to half of what it used to be. was at the record peak of October 2020.
The final regulatory step in what some market observers see as a personal vendetta against Ma will deal another blow to both the individual and the company he founded. According to a report first published in the Financial Times, Chinese authorities plan to split Ant's Alipay division and force the creation of a separate, independent loan app that could eventually become state-owned. .
As a result, Hong Kong-listed shares of the Alibaba Group (HK:) fell as much as 6.3% this morning, falling 4.2% at the close of trading.
For anyone thinking of buying the dip based on current fundamentals, we reiterate our warning from late last year and note that the stock's technical data doesn't look too promising either.
The stock rests on the edge of a knife. It may have escaped a death sentence today, but bulls remain on the chopping block.
The stock managed to close above the bottom of a bearish pennant. But based on the Rate of Change – an indicator that measures momentum – it's only a matter of time before another downward breakout sends stocks plummeting even lower.
The psychological dynamic of this trading pattern is that the equilibrium price is the result of shortcovers and the opposing supply of short sellers. If the pattern continues to play itself out, bearish momentum will push the stock below the pattern after the short cover is complete and the stock remains.
Note: The pattern is not complete and no sell signal is given, but the price closed below the pattern, showing that investors are still willing to get stuck in their positions at the end. However, this can be a bear trap so traders should proceed with caution and use appropriate filters. Aug 23 low, then rallied with dip-buy amid a "return move" to retest the pattern's resistance.
Moderate traders may be content with a full candle under the pennant. They too could wait for a corrective rise, for better input, if not confirmation.
Aggressive traders would sell at will, in hopes that US-listed stocks will continue their decline when the Wall Street session begins.
Trade Sample
Input: $165
Stop Loss: $180
Risk: $15
Goal: $120
Reward: $45
Risk: Reward Ratio: 1:3
