US Stock Focus Alibaba faces risk of medium term corrective decline

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By :  ,  Financial Analyst

Alibaba Group is a major e commerce firm that derives a significant portion of its revenue from the China market. Its stock is listed on the NYSE where it will report its fiscal year Q1 2018 earnings on Thursday, 17 August 2017.

The latest online retail sales data in China from the National Bureau of Statistics had shown acceleration in growth to 41% y/y recorded in June from 30% y/y in May, the expectations had been set on the high side for Alibaba’s upcoming earnings release. 

Consensus estimates for Alibaba’s FYQ1 2018 sales is expected to grow at 54.6% y/y to US$7.15 billion and EPS to increase by 31.9% to US$0.93 per share.

In addition, during the recent June 2017 Investor Day gathering held on 08 June/09 June 2017, the senior management team of Alibaba had provided strong FY 2018 revenue growth guidance which further increases market expectations.

Now, let us take a look at Alibaba from a technical analysis perspective.

Medium-term technical outlook on Alibaba Group (BABA)


Key technical elements

  • Since its 22 December 2016 low of 86.01, BABA had rallied by a whopping 86% to print an all-time high of 160.39 seen on 27 July 2017. Since last week, BABA had failed to surpass 160.39 and staged a decline of 7.7% to print a low of 147.50 seen on last Friday, 11 August 2017. Interestingly, the aforementioned decline was reacted off from the upper boundary (resistance) of a medium-term ascending channel in place since 22 December 2016 low.
  • Yesterday’s (14 August 2017) gapped up in price action was accompanied by a lower volume versus last Friday’s volume (14.6 million versus 22. 3 million) and even less than Thursday, 10 August down day’s volume of 19.3 million. These observations suggest that demand had remained lacklustre despite yesterday’s close of 154.61 which resided in the upper half of the 10 August 2017 down day’s daily candlestick.
  • Medium-term upside momentum has also started to wane. The daily RSI has staged a bearish breakdown below its former ascending support in place since 16 February 2017 low it flashed a prior bearish divergence signal at its overbought region.
  • The next significant medium-term support rests at the 135.20/133.10 zone which is defined by the gapped up seen on 08 June 2017 (the recent Investor Day gathering), the lower boundary of the aforementioned ascending channel from 22 December 2016 low and the 23.6% Fibonacci retracement of on-going multi-year primary degree uptrend in place since 29 September 2015 low to the 27 July 2017 high.   

Key levels (1 to 3 months)

Pivot (key resistance): 160.39

Supports: 144.57 & 135.20/133.10

Next resistance: 168.70/171.00

Conclusion

The current medium-term uptrend from 22 December 2016 has appeared to be overextended where the risk of mean reversion corrective decline increases at this juncture.

Therefore, as long as the 160.39 pivotal support is not surpassed, BABA may shaped a corrective decline to retest its intermediate support of 144.57 (the former swing high congestion area of 09 June/26 June 2017) and a break below 144.57 is likely to open up scope for a further potential down move to target the next support at 135.20/133.10 within its longer-term primary uptrend.

On the other hand, a burst above 160.39 is likely to see an extension of the rally to target the next resistance zone of 168.70/171.00 (Fibonacci projection cluster).

Chart is from eSignal

Disclaimer

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