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Things have not gone as planned in the year and two months since Alibaba Group (NYSE: BABA) went public, but a recent surge in the stock price has allowed the stock to break a long-term downward-sloped trend line.
When Alibaba made its debut on the New York Stock Exchange on Sept. 19, 2014, many people were excited to get the chance to buy shares of the Chinese e-commerce company. The shares opened that day at $92.70 and got up as high as $99.70. The shares dipped a little over the next month and briefly dropped below $85 before rallying up to a high of $120 on Nov. 13. Since that time, the stock has been in a downtrend.
Looking at the daily chart, we see that Alibaba stock lost a third of its value from November to March. The thing that is most baffling about the falling stock price for Alibaba is that it came as the Shanghai Composite Index (SSEC) was going through a tremendous rally.
From Nov. 13 of last year through June 12 of this year, the SSEC gained 107.85% while Alibaba lost 24.56%. Then when the Chinese market started collapsing during the summer, Alibaba went down with it. It didn’t participate in the overall rally, but it participated in the crash that followed the rally. That is not want you want as an investor.
There may be some good news for Alibaba investors though. Thanks to a rally of almost 40% since the beginning of October, the stock has recently moved above the trend line that connects the all-time high and the high from May. This tremendous rally in October has put the stock in overbought territory by both the stochastic readings and by the 10-day RSI standards.
We see both the trend line and the recent rally a little more clearly on the weekly chart. We also see a possible source of resistance that the stock broke through this week at the $80 level. This particular area served as support in March to April, but it gave way in July when the Chinese market was really getting hit hard.
The weekly oscillators haven’t reached overbought levels yet, but they certainly seem to be headed there. The 10-week RSI is already closing in on the highest level it has ever reached, and the weekly stochastic readings have only been in overbought territory one time.
The main question is, should you be looking to buy Alibaba stock right now? And my answer is not yet.
While breaking through the resistance is a good sign, the overbought readings on the daily chart are concerning. While I do think Alibaba would be a good stock to own for the long term, I just don’t like buying it after a 40% run up in approximately one month. I would look to buy it on a pullback once the daily oscillators are out of overbought territory.
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