Trade view /
31 May 2016 at 8:36 GMT
Shares of Alibaba Group Holding (BABA:xnys) have been consolidating in a tight range for about two months now and increasingly look ready to break higher for a trade that has a well defined upside target.
Last week it emerged that Alibaba was being investigated by the SEC over its accounting practices. This led to a selloff on May 25 but the stock has since rebounded sharply. When a stock can quickly shake off "negative" news and get back to technically crucial resistance levels then the odds of a better breakout are high.
Before looking at the daily chart let's note that on the weekly chart thanks to last week's bullish reversal Alibaba stock broke and held above the diagonal resistance line from the second quarter of 2015. Also note the bullish reversal candle with the long tail/shadow, which represents last week's quick selloff and bounce-back higher.
Source: Saxo Bank
On the daily chart we see that shares of Alibaba at last week's lows simply retested its 100-day and 200-day simple moving averages before closing the week right back at the black diagonal resistance line. While the stock remains in its two-month consolidation range from this perspective, a breakout higher is looking increasingly imminent.
Upon a confirmed breakout traders could look to jump on the stock for a move back to the late 2015 highs as a first upside target.
Management and risk description
The key to this trade is last week's intraweek bullish reversal following the SEC investigation news. This also puts a very clear last resort stop-loss level in the map, namely last week's lows.
Buy the stock or CFD at $81 or higher.
$77 and $74 as the very last resort stop.
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more