Alibaba Stock News and Forecast: BABA shares gain in premarket despite sinking in Hong Kong

Alibaba (BABA) stock is surprisingly advancing in Monday's premarket despite losing 3.8% in Hong Kong during the Asian session. BABA is up 1.4% at $90.62 after losing more than 11% on Friday due to a delisting warning from the US Securities & Exchange Commission (SEC). 

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On Monday morning the company released a filing concerning the issue: "Alibaba will continue to monitor market developments, comply with applicable laws and regulations and strive to maintain its listing status on both the NYSE and the Hong Kong Stock Exchange."

Alibaba stock news

BABA shares tanked 11.2% to close at $89.37 on Friday after the SEC added Alibaba to the companies in non-compliance with audit regulations. If continuing negotiations between US and Chinese officials do not pan out, then BABA and hundreds of other US-listed stocks could have their stocks removed from major US exchanges. The news from Friday adds to concerns after Alibaba announced that it would seek a second primary listing on the Hong Kong Stock Exchange (HKEX), a move that many see as preparations for a possible US delisting.

“Alibaba’s recent application to the HKEX for dual-primary listing status and the lack of positive news on the US-China negotiations on the audit issues have likely led the market to believe more strongly that Chinese ADRs will inevitably be delisted,” wrote Edison Lee in a client note over the weekend for investment bank Jefferies.

The Holding Foreign Companies Accountable Act (HFCAA), passed in 2019, says that foreign companies listed on US exchanges have to comply with certain regulations from the Sarbanes-Oxley Act of 2002. That Act came into existence because of the Enron scandal of the early 2000s that involved accounting gimmicks and outright fraud. The Act says that all publically-traded entities in the US must submit audits to the US Public Company Accounting Oversight Board (PCAOB).

While more than 50 different nations and jurisdictions comply with the PCAOB, China and Hong Kong do not. A 2009 law limits Chinese companies from showing audits to foreign governments. Although the China Securities Regulatory Commission said in April that it would amend the law to allow audit sharing, nothing concrete has come of it. The HFCAA gives companies three years to comply with the regulation before being delisted, and some 270 companies are now on the list alongside Alibaba.

Covid shutdown risks are still suppressing the market overall due to Beijing's zero covid tolerance measures. Government pressure to have Alibaba founder Jack Ma step down from Ant Group, the fintech player that BABA owns one-third of, could mean its long-planned IPO is pushed back a year. Earlier this summer Chinese officials leaked to news outlets that Ant's IPO would receive the go-ahead from regulators.

Alibaba stock forecast

BABA stock is not looking good. While the July 8 high of $125.84 meant a new higher high and climb past the March 23 high, July 8 was unable to match the highs from February where resistance was found at around $128. Though $100 had been acting as solid psychological support in recent weeks, by closing well below that price level on Friday BABA seems destined to retouch support at $82. The $82 support worked on five separate occasions between April 25 and May 25. The only time it failed was May 12 when BABA stock went to $78. 

BABA share price 9-day moving average crossing well below the 21-day counterpart demonstrates the seriousness of this downturn. Additionally, both the 9-day and 21-day moving averages, currently near $101 and $107.50, should create resistance on the way up.

BABA could find support at $60 in the event of a major unforeseen crash. This is a price level that acted as a base from August through October 2015. BABA will remain in negative downtrend territory until it closes back above $100. It could be sometime before that happens, however. The Relative Strength Index (RSI) is giving a reading of 31. This is the lowest reading since April 26. Typically, oversold conditions are reached once the RSI goes below 30.

BABA daily chart