Alibaba Stock Forecast: BABA shares down sharply in premarket


  • BABA shares are paring their midweek gains in premarket.
  • US SEC placed new scrutiny on Chinese listings.
  • China pushing new security protocols for tech companies.

After investors headed for the exits on dastardly news in the early part of the week, Alibaba (NYSE: BABA) has recovered from the Monday low of $179.72. It closed up an uncertain 1.5% on Thursday, though DiDi Global (NYSE: DIDI) – the initiator of the recent fear among Chinese investors – rocketed up more than 11% on rumours of going private. BABA appears to be the fodder for a dead cat bounce as shares are down 3.6% in Friday’s premarket at the time of writing.

BABA stock: No traction for reversal

Thursday’s share price rise appears bearish in hindsight. Though BABA opened more than $4 higher at $200.26, more than 2% higher, it could not retain momentum and collapsed early in the session even below Wednesday’s close before rising toward the end of the session.

To cap, just a week after BABA’s all-time high last October, Chinese regulators abruptly suspended the IPO of subsidiary ANT Financial, which was only the beginning of the government’s crackdown of Chinese internet and cloud companies. The regulatory onslaught was reignited earlier this month the day after Didi Global (NASDAQ: DIDI) held its US IPO. After that both Tencent and Baidu received steep fines, and ByteDance was also summoned by regulators for discussions.

Now Bloomberg is reporting that China has demanded major security fixes and consumer protections to 25 large tech companies, including Alibaba. Though BABA is a gigantic and growing consumer tech staple that has ignited the curiosity of many a US hedge fund in seasons past, its proximity to further Chinese regulatory actions make it untouchable for most. 

ARK Invest’s Cathie Wood has traded out of many of her top Chinese tech names completely. In a talk she gave in early July, the much-tracked growth investor said, "From a valuation point of view, these stocks have come down and again from a valuation point of view, probably will remain down." The US Securities & Exchange Commission also issued new protocols on Friday to apply addtional scrutiny of Chinese companies seeking to list on US stock exchanges, a move that will halt new listings.

BABA chart: Not much space for true rally

Alibaba's first roaring and then sheepish rally this week appears to be fizzling out. The stock is selling off steeply in the premarket near $190, a psychological barrier. If major instituions decide to sell, then investors should brace themselves for another test of the $180 level. BABA stock has remained in a descending trend channel since last autumn. Now that the triangle is narrowing, the upside possibility seems scant. The stock closed near the S2 pivot on Thursday, which may actually be resistance based on today's premarket activity.

BABA daily chart

The weekly chart gives a 37 reading on the Relative Strength Index (RSI), meaning BABA stock may be far from oversold despite what some say. Additional support can be found near $175. Above here, BABA shares would need to witness a weekly close above $213.08 to break out of the top trend line and scare away the bears. Though Alibaba appears cheap by many standards – the P/E is well below expected revenue growth – few major investors will be buying heavily with so much regulatory uncertainty.

 

BABA weekly chart

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

How do emotions affect trade?
Follow up our daily analysts guidance

Subscribe Today!    

Latest Forex News


Latest Forex News

Editors’ Picks

EUR/USD battles with 1.1700 as the market mood turns sour

Poor German data and renewed concerns about a default of the Chinese Evergrande property giant undermined investors’ sentiment, pushing them into the dollar’s safety.

EUR/USD News

GBP/USD accelerates its slump, trades around 1.3650

GBP/USD is under strong selling pressure, trimming most of its post-BOE gains. Concerns about the global financial health and slow moves towards tapering weigh on markets.

GBP/USD News

XAU/USD hangs near multi-week lows, around $1,745 ahead of Powell

Gold struggled to capitalize on its attempted intraday recovery move. Hawkish Fed/BoE, rising bond yields acted as a headwind for the metal. Resurgent USD demand exerted additional pressure on the commodity.

Gold News

PBoC imposes ban on crypto trading as it fosters ‘illegal financial activity’

PBoC bans crypto trading activities and a plethora of associated services, labeling it “illegal.” Overseas cryptocurrency exchanges providing services to Chinese residents will be investigated in accordance with the law. 

Read more

Evergrande, VIX and yields make for choppy day ahead

Equity markets remain focused on Evergrande as rumours of a possible default on overseas debt swirl. The market appears to be on the hunt for negative news, which leads us to conclude that stocks are going lower in the short term.

Read more

Forex MAJORS

Cryptocurrencies

Signatures