Alibaba Stock Forecast: BABA approaches $100 for first time since April amid Chinese equity rally

Alibaba (BABA) stock added 4.5% on Monday following news that it would not be selling any of its 33% stake in Ant Group. Then China’s digital heavyweight was carried along by further positive vibes from news that the government will institute more policies to aid the economy. 

The BABA stock price has increased by another 1.6% in Tuesday’s premarket on the back of the Hang Seng (HSI) index jumping 4.1% in Hong Kong. Alibaba’s Hong Kong-listed shares (9988.HK) closed up 6.3% on Tuesday.

Alibaba stock news: Chinese equities appear to turn page

Alibaba is once again nearing the $100 psychological level that it has not tested since early April. Shares are up 11.4% over the past month.

Part of the reason for this renewed optimism comes from the end of SoftBank’s heavy offloading of BABA shares. The Japanese holding company once owned 25% of Alibaba but has cut nearly its full stake in a bid to shore up its own depleted balance sheet. Besides the Chinese central government’s two-year crackdown on tech companies, Softbank’s nearly continuous selling of BABA stock through prepaid forward contracts was a major reason pushing the share price down since late 2020.

With that heavy supply source now dissipated, BABA stock is beginning to get bid once again. It’s not just Alibaba shares though. A number of the most popular US-listed Chinese stocks are beginning to turn a page. Tencent (TCEHY), Baidu (BIDU) and Nio (NIO) are all trading above both their 50-day and 200-day Simple Moving Averages (SMAs), as is the Hang Seng index.

Alibaba’s decision not to give up any of its Ant Group stake is also a bullish sign for investors. Ant Group owns China’s largest payment platform, Alipay, and rumors have emerged that it will soon seek to launch an IPO. In the lead up to that strategy, Ant Group has announced a $6 billion share buyback plan from its private investors. 

"Given that Ant Group continues to be an important strategic partner to Alibaba Group's various businesses, Alibaba Group has decided that it will not sell any shares to Ant Group under the proposed share repurchase, so as to maintain its shareholding in Ant Group," Alibaba stated in a Hong Kong Stock Exchange filing.

Chinese government announcement to back economy leads to short covering

Monday strengthened this dynamic when China’s National Development & Reform Commission (NDRC) announced that it was seeking ways to increase private investment in a number of industries including clean energy and transportation. 

Then on Tuesday the Chinese Communist Party’s politburo agreed to prop up the nation’s flagging real estate sector and said it would attempt to reinvigorate the economy’s slow recovery from the Covid-19 pandemic.

This has led to a second straight day of major gains for Chinese equities. However, anecdotal evidence points to the immediate gains also being a product of heavy covering by short-sellers.

“There’s a herd instinct here, and about two-thirds of this rally looks like short covering,” said Louis Tse, managing director of Hong-Kong brokerage Wealthy Securities, in an interview with The Financial Times.

The politburo statement also alluded to measures to reduce the unemployment rate, which is notably high among young adults.

Alibaba stock forecast

The daily chart looks a bit muddled since Alibaba stock has zigged and zagged over the past 30 months with seemingly little rhyme or reason. The strange chart behavior should mostly be ascribed to Softbank’s largescale sell-off of BABA shares, which tripped up bulls quarter after quarter. 

However, BABA stock is now undulating within an ascending price channel (gray trendlines) that began in May. A surge above $100 this week would certainly be a bullish sign as it would require breaking above the price channel’s top trendline. 

From there, BABA stock would immediately have to come to terms with the long-term resistance zone ranging from $103 to $105.32. This range thwarted progress by bulls in July and August of 2022 and again in April of this year. 

A break there would let bulls make a run at the $120 resistance level. BABA last tested that level in January, and $120 has been a point of intrigue since all the way back in November of 2014 when it first announced itself as a point of profit-taking.

For near-term support, traders should look to the 50-day and 200-day SMAs near $87 and $89, respectively.

BABA daily chart