Yesterday, after the Trump administration scrapped plans}} to blacklist Chinese technology giants Alibaba (NYSE :), Baidu (NASDAQ 🙂 and Tencent (OTC :), Alibaba's shares rose 4 , 3%.
While that was good news for the Hangzhou, China-based e-commerce giant, the longer-term outlook for the company's stock is not so optimistic. Shares of BABA have been declining since October, shortly after company founder Jack Ma criticized China's financial regulation.
Shortly afterwards, authorities abruptly canceled what was billed as the world's largest IPO, of Ma & # 39; s fintech Ant Group, and began to crack down on the founder and his companies. That triggered a sell-off in Alibaba shares that started just after the stock hit a record high of just under $ 320. The stock is now 26% lower, even after yesterday's surge, and remains on track to decline even further.
That's because Ma has disappeared since he voiced his criticism of the Chinese financial authorities. Rumors are now circulating that the government plans to nationalize both Ant Group and Alibaba.
That could cause even more pessimism about the stock. Likewise, yesterday's price action suggests the bears are still in control.
While the price rose 4.5% yesterday, it previously quoted a 6.7% advance. Why would there be sales on a day with positive news?
The price fell from the top of a pennant, bearish after falling 14.4% on December 24, when China announced it had launched an antitrust investigation into the technology giant. While many analysts remained optimistic about the stock, we warned shortly afterwards {{art-200549135 || that more pain was likely to come after the stock completed a V&G summit.
]
Since then, the stock has been trading on the bearish pennant – as part of a & # 39; return movement & # 39; to retest the integrity of the cartridge – reinforced by the neckline of the V&G and by the (dotted) downward trend from the head of the H&S.
Note that the volume increased with the fall from the head to the neckline, while drying at the rising price within the pennant, producing negative divergences.
The 50 DMA plunged below a then rising but now falling 100 DMA and rushes towards the 200 DMA, which points to the X marking the spot of the focal point of so much importance, threatening a Death Cross.
The implicit target of the H & S – measured from top to bottom Sept. 4. – puts the USD 190 level in a crosshairs.
Note: Both the MACD and the RSI were sending bullish signals at the low point. So proceed with caution.
Trading Strategies
Conservative traders should await the completion of the pennant with a downward breakout that should bring him below the low of the pennant. Then there could be an attempt to rally after a short squeeze, but then be blocked by the resistance of the downtrend.
Moderate traders would wait for the downward breakout, then wait for a corrective meeting for a better entry point.
Aggressive traders could now go short, as the proximity to the neckline provides a favorable risk-reward ratio, as long as they understand and accept the risk of lack of confirmation. Therefore, tighter money management to offset the higher exposure is critical to continued trading success.
Here's just one example:
Trade Sample – Opposite Short Position
Entry: $ 240
Stop Loss: $ 245
Risk: $ 5
Goal: $ 210
Reward: $ 30
Risk: Reward Ratio: 1: 6
