Chart of the week: Another miracle from this star share?
Having enjoyed an incredible rally, our technical analyst asks if solid chart resistance can be broken.
4th March 2019 10:29
by John Burford from interactive investor
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Having enjoyed an incredible rally, our technical analyst asks if solid chart resistance can be broken.
Is it 'Open Sesame' for Alibaba shares?
The company that Jack Ma famously built into China's biggest retailer is a favourite trading vehicle for UK investors/traders – and no wonder. Mr Ma is seen as being a miracle worker in the potentially biggest consumer market on earth.
What Amazon (NASDAQ:AMZN) has done for the USA (and elsewhere), Alibaba (NYSE:BABA) can do for China (and elsewhere). The story is irresistible, is it not?
But just as most great financial stories appear to be a no-brainer at the start, it often encounters difficulties along the pathway to economic heaven. And that is where some astute chart reading can offer clues that the rocket of share price growth can be seen to be sputtering in the rarified atmosphere of extreme valuations.
And that is what happened last year as the shares rocketed to the $210 level.
Here is the weekly chart showing the tremendous bull run from September 2015 to June 2018:
Source: interactive investor Past performance is not a guide to future performance
Again, I have a classic five-up to the $210 high on a strong momentum divergence. And from that high, the shares have retreated down to the Fibonacci 50% retrace - a normal correction. And from that $132 Christmas low, the shares have rebounded with the general market to the $170 level.
Here is a close up of recent action:
Source: interactive investor Past performance is not a guide to future performance
The B wave rally has also retraced a Fibonacci 50% to where solid chart resistance lies. That $170 zone was solid support until September when the shares broke down through it in the A wave. It is now resistance.
So, with the shares again trying to push through, the odds are against it and therefore represents a 'sell' area.
A decline from here would set up a C wave target well below the A wave low at $130.
Chinese shares have been buoyant of late in anticipation the authorities would kick off another round of massive stimulus as GDP growth has been ebbing away.
Loans to companies have been expanding which indicates that move is already on. So, is this a case of 'Buy the Rumour, Sell the News'?
Only a sharp push above the $170 zone would cancel my forecast.
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.
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