Alibaba (BABA) stock advances in contrast to broader market sell-off

Alibaba (BABA) stock is performing much better than the broad US market on Wednesday. With several economic indicators coming in slightly hotter than expected, the market is worried that the Fed is not getting the results it desires and might need to raise rates much further. BABA stock rose 1.3% at the open before falling to 0.4% one hour into the session near $83.75, while the Nasdaq has shed 2.2%. With the growth-focused Nasdaq losing about 100 basis points more than the Dow, it is clear that September's flight to safety has resumed after Monday and Tuesday's risk-on rally. Alibaba stock closed up 4.6% on Tuesday at $84.11.

Alibaba stock news

The Institute for Supply Management's September Services PMI came out Monday morning at 56.7. Consensus had stood at 56. Anything above 50 is generally bullish for the economy and the dollar, so this was not what the market wanted. It has been well-known for some time that goods inflation has begun leveling off, but as with last month's inflation reading, services inflation is acting more stubbornly. The worry is that this may lead the Federal Reserve to continue hiking rates in an aggressive manner in order to whip inflation for good.

The August figure did come in at 56.9 though, so at least the index is moving in the right direction. However, the related index that covers new orders for the services sector also saw a reading above consensus, so this all points to the economy in the US remaining quite strong. US investors are in a strange place where they are mostly hoping for poor economic data to emerge that will allow for a Fed pivot away from higher rates that tend to make equities less attractive.

Despite Alibaba's announcement in recent weeks that it would spend another $1 billion on its cloud division, a strategy that opens the possibility for better margins going forward, some pessimists have been focused on the negative aspects of a recent Morgan Stanley client note from last week. 

"We forecast GMV to decline 2% [YoY] in [Q2] from a mid-single-digit decline in first-quarter," Morgan Stanley's Gary Yu wrote to clients. Yu cut his price target from $140 to $110, saying that though operational efficiencies will help EBITA growth, the decline in revenue growth will hamper the excitement. Both Morgan Stanely and Citi analysts believe the cloud will continue to underperform, with Citi expecting the coming earnings report to show cloud growth rising just 4% YoY.

Alibaba stock forecast

BABA stock bulls need to focus on the $88.25 level. This price level worked as support throughout August and into the first half of September. As Alibaba stock broke through here in the second half of September, this price level acted instead as resistance. A daily close above this price will be a signal of further price appreciation. 

One good sign here on Wednesday is that early in the session, Alibaba's stock price broke above the 21-day moving average. It does seem that there may be a building case for bulls with BABA as it continues to outperform the US market indices on down days. All of the negative internal information appears to have been factored into the price, while the US market continues to incorporate more bearish information on a week-by-week basis. 

BABA stock broke well above the 9-day moving average on Monday, might still use it as support if it falls back toward $80. 

BABA daily chart