U.S. traders and investors often but into or at least largely ignore news of anti-trust actions against publicly traded companies. Alibaba Group Holdings (BABA) was not as fortunate at least for today. Alibaba stock plunged as much as 17.5% before closing with a 13.3% loss in the wake of news that the State Administration for Market Regulation (SAMR) of the People’s Republic of China placed the company under anti-monopoly scrutiny. Ironically, just a month ago, Alibaba CEO Daniel Zhang publicly applauded China’s moves to create laws against monopolistic behavior on the internet.
The Trade
The chart for Alibaba stock shows a tradeable technical symmetry. BABA experienced a bullish breakout to all-time highs on July 6th. The stock rallied another 32.1% from there before last peaking in October. Today’s gap down started right under the breakout line. The stock also closed near its price before the July breakout.
This symmetry from the breakout line provides traders bullish and bearish structural options. First note that BABA is well over-extended to the downside as it trades well below its lower Bollinger Band (BB). In that context, a significant bounce off the intraday lows makes sense. The 11-point move is substantial. As a result, it may represent most of the short-term buying interest in the stock until the next catalyst.
However, if BABA closes above the breakout line, above $231, the stock becomes a buy for a trade to test overhead resistance at the 200DMA. If BABA manages a fresh 200DMA breakout, then the stock re-enters bullish territory. At that point, BABA is a buy with a stop below the 200DMA as support.
On the bearish side, traders can target fading BABA just under the breakout line with a stop loss above that line. An eventual close below today’s intraday low would deepen the bearishness in BABA.
These trading prospects are so intriguing that I am considering suspending my personal moratorium on trading China-related stocks for just this one case.
Be careful out there!
Full disclosure: no positions