Alibaba (BABA) Under Pressure
Shares of Alibaba (BABA) are sliding, down about 4% over the past 251 trading days. The large-cap China ETF (FXI) held up a bit better than the broader group of Chinese companies. Most of those names are in the red. One, BU, is the only one with a gain, up 1.4% over the same stretch.
What the Chart Shows
A downward sloping trend line (blue) was broken first. That turned into an upward channel, which has now also broken as of Friday. After earnings, BABA popped and then faded. The channel is the zone bulls need to fight back into.
A green horizontal line near 121 has broken - a concern. The next support sits at 112 (the green line below). Below that, 100 is where a gap was filled. To the upside, a small gap near 133 marks a red line. Above it, 147 is a relative high from the previous earnings event in May, and another small gap near 151 is worth watching.
Moving Averages, RSI, and Volume
Price stopped at the 251-day EMA (orange) a couple of times. In rapid succession it then fell through three shorter-term exponential moving averages: the 5-day (dark blue), the 21-day (teal), and the 63-day, plus the gold line. The gold EMA at 121 is the closest level bulls would want to reclaim.
RSI has dropped below its trend line and its 50 midline - more bearish signals. The volume profile shows a node to the downside near 111 to 115. To the upside, volume thins out above 138.
The Trade Setup
For an example bullish trade, look to the September expiration, 25 days out, with an expected move of plus or minus about 9.8%. That sets a boundary near 105 on the downside and 128 on the upside.
The trade: buy one September 18th 120/130 call vertical for a $3 debit. Max loss is $300, max profit is $700, giving a risk-to-reward near 1 to 2.3. Break even is 123, about 5.6% to the upside versus the nearly 10% expected move, which keeps it inside the boundary. The max profit area at 130 sits right at the edge of the expected move. The idea is a straightforward setup looking for a bounce after the announcement.
