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Why Alibaba Stock Looks Poised For Reversal

Alibaba Group Holdings, Ltd (NYSE:BABA) stock is spiking higher on Friday, in tandem with the S&P 500, which was surging over 2%.

The bullish price action caused Alibaba to break up from a descending channel pattern on the daily chart. When a stock breaks up from a descending channel, it's a powerful reversal signal and indicates a rally is likely in the cards.

The beaten down stock has largely failed to bring in bullish traders and investors for any long period of time despite signals China may begin easing its regulatory crackdown on its domestic companies.

Alibaba has a lot of work to do to prove it can reverse to the upside: although the stock is trading higher, Alibaba remains in a downtrend.

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The Alibaba Chart: Alibaba fell into its most recent consistent downtrend on April 29 and began trading in a descending trendline on May 4. The stock’s most recent lower high was printed on May 10 and $88.64 and the most recent lower low was printed at the $78.01 mark on Thursday.

  • Technical traders may have anticipated at least a bounce up to form another lower high was likely to come on Friday, as on Thursday, Alibaba printed a doji candlestick. When a doji candlestick is found in a downtrend, it often signals a reversal to the upside is in the cards.
  • If Alibaba closes the trading day near its high-of-day price, the stock will print a bullish Marubozu candlestick, which could indicate higher prices will come again on Monday. If the stock falls and closes the trading session with a long upper wick, it could indicate the next lower high has printed and Alibaba will trade lower within its downtrend next week.
  • Alibaba has multiple gaps above on its chart, with the closest gap between $148.50 and $161.41. Gaps on charts fill about 90% of the time, which indicates Alibaba is likely to rise up to fill the empty trading range in the future, although it should be noted it may be a long time before that occurs. If Alibaba is able to close the upper gap, it would represent an 84% increase from the current share price.
  • Alibaba has resistance above at $89.95 and $96.17 and support below at $83.84 and $73.28.
See Also: Jack Ma's Absence From His Conceived Alibaba Event Raises Curiosity Over His Role In Company

Photo courtesy of Alibaba.