Interactive Investor

Chart of the week: is Alibaba a steal at this price?

16th August 2021 13:08

John Burford from interactive investor

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Our charts expert considers whether the Chinese e-commerce firm’s shares are poised for lift-off.

This Chinese internet giant – named after the venerable fable of Alibaba and the Forty Thieves – has been in the news recently, but for all the wrong reasons.

Namely, an old-fashioned sex scandal (these are seemingly getting more common among the global elite). Cue outrage on social media. 

From an investor's point of view, this negative publicity reflects the worsening sentiment towards Alibaba (NYSE:BABA). So not only does it face this barrage of public criticism, but also from the crackdowns on the internet giants from the regulators. A double whammy.

That has resulted in a slide off the all-time high in November of over 40% - a very decent discount.

And because buying shares when sentiment is weak has been a terrific investment strategy for years, have they reached the point when such buying makes it an ideal candidate for inclusion on my Buy Low/Sell High list? Is this a terrific contrary investment?

So what about the background data? Have the latest results disappointed?

Far from it – latest quarterly profit was up 22% and revenue increased by 44% with user numbers well up. Hmm.

Let's get to the chart:

Past performance is not a guide to future performance.

At the current 187 price, it has declined by an exact Fibonacci 50% retrace of the entire rally off the 2015 low to the November all-time high.

This is accompanied by a very large momentum divergence (appears also on the daily chart). Finally, the form of the decline is a clear three.

Regular readers will recognise this picture – it is potentially very bullish from around current levels. And the size of the momentum divergence should herald a rapid reversal up.

But if it does decide to move a little lower first to the Fib 62% retrace at around the 156 mark, that would be an even better entry.

But odds favour a turn from here, I believe. Only a strong move below 156 would send me scurrying back to my drawing board.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

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