Alibaba (BABA Stock) on dark clouds ahead of earnings

Broadening and strengthening of the US recovery (the headline miss in the jobs report notwithstanding), expectations of better days ahead in the Eurozone, and faith that vaccines will win the day in pandemic hotspots provided another round of support for equity markets overall. Confidence is growing that the global economy is turning the corner to stronger growth, even as infections still surge in some regions. However the traction gained this week the concerns around inflation, drifting the stocks in sell off.  Stock market sell off intensifies currently as tech stocks in particular continued to be pressured by inflation fears and a -1.3% decline in the USA100 future suggests that the sell off in not over yet. The USA100 already lost -2.6% yesterday.

While fundamentals have taken a front seat to a lot of exogenous events, there will be plenty of data ahead to digest that will give an early view of 2021 activity. While attention in the markets has shifted to data and fundamentals, this week’s earnings reports will be in focus as well as the schedule of earnings is again very busy, with Alibaba, Commerzbank and Toyota due to report tomorrow, while there will be Walt Disney on Thursday as well.

Alibaba billionaire’s Jack Ma ecommerce group is one of the biggest companies reporting this week with market capitalization of $609.6 billion. The company will present its earnings before the market open on Thursday 13th, May. Ahead of the report however there is a lot of scepticism and dark clouds around the company as it has recently accepted a $2.8 billion fine by Chinese regulator for abusing its market position for years. After the fine the company is under intense scrutiny, stating that they do not expect any material impact from the antitrust crackdown in China that will push it to overhaul how it deals with merchants.

On top of the regulatory risks of Alibaba and whether it will affect in the future Alibaba’s financial growth, what keeps investors sceptical in the near term is the stocks performance as its shares kept lower to 1-year support, i.e. 210.15, which was seen as a key resistance area the past 4 years. That said, the Alibaba’s stock hasn’t seen during the pandemic era similar strong stock performance as many of its e-commerce rivals, even though it leads the 2/3 of Chinese e-commerce market.

On the bright side, as reported by Zack’s Equity Research , Alibaba’s strong efforts to add value to consumers and sellers through the consumer segment, product enrichment and platform innovations are expected to have driven growth in its e-commerce business in the to-be-reported quarter by driving its customer momentum. Hence eyes will be on the figures on Thursday for the company’s fast-growing cloud computing division as well as any new business initiatives and the outlook for the full year’s financial figures, as pandemic remains beneficiary for all e-commerce giants and the world’s largest search engine due to the extended and repeated lockdowns worldwide.

According to Zacks Investment Research, the report for the fiscal Quarter ending March 2021 is expected to experience a near quarter rally of its Earnings Per Share (EPS) compared to last year, at $1.91 which reflects a rise of 46.9% from the same quarter last year.  The company’s revenue are seen between $27.9 billion with the yearly change seen at approximately 17.9%.

Alibaba’s share price as stated above appears to have drifted since October 2020 to the $210.16 low, while is currently retesting this strong floor once again as it forms a descending triangle. Both the 50- and 200-day EMA trending lower as momentum is increasingly negative with RSI at 39 pointing lower and MACD lines extending southwards below zero. Against this backdrop, a disappointing earnings report could push the share price towards a breakdown toward of this key support.