A Look at Alibaba on Multiple Timeframes

I find using multi-timeframe analysis helpful for identifying strong turning points. Being a long-term swing trader I want to position myself in a blooming trend early to capture large profit opportunities. The kind of moves I prefer take time to develop, they don't occur over a one or two week period. If I position correctly and the stock cooperates I may hold for a year or more.

BABA is offering the type of opportunity I look for as long-term swing trader. Not only do they sport solid growth numbers, but also a very low 33% Institutional ownership at the current time. It should be noted, according to finviz.com Institutions added 6.5% more exposure in the most recent quarter. When the Big Money are accumulating shares it is often a positive sign for future growth. BABA grew EPS by nearly 200% in the past year and posted 60% Sales Growth Q/Q.

It appears the fundamental numbers are headed in the right direction, now lets take a look at the four primary time periods I use to identify these turns:

Monthly

For my methods it all starts with the monthly view. Being that BABA is a relatively new issue stock it is only recently showing a 20 SMA, which is now turning higher. The rally this year extended in the late summer and was trading more than 40% above the 20 Month SMA. When this amount of "air" exists between price and the 20 SMA I know its time to wait for a better risk/reward and let the stock settle out for a while.

Since the $110 high in September BABA has pulled back to just above the prior breakout level near $85. This has allowed the trend to rest and has shaken out a lot of the excess bullishness as traders chased the prior rally. Much of the air has also been filled as price is now approaching the rising trend average.

Weekly

The Weekly view is where most of my signals generate from. For BABA to trigger an entry we first need to see price above the prior week's high, currently that comes in at 95.30. For a valid weekly Buy signal to confirm price will need to close above that prior week's high.

I have alerts set for 95.30 to notify me when the trend is making the "higher high" we are seeking. We will then watch how the week plays out to see if price can hold and suggest a turn is in place.

Daily

Drilling down to the Daily timeframe can give us an indication of the underlying patterns that may be forming. There are a few things that stand out to me right away. First we have a gap fill from the August breakout that also coincided with a 61.8% retracement of the summer rally. Secondly I notice the pullback has seemingly formed a very clear 5-wave pattern that may have completed after the gap fill and Golden Ratio tag.

If we remove all bias from indicators and simply look at the trends we can see it is still a bit early to determine if the trend has fully bottomed. In July price began making higher highs and bull flag type formations. This action continued until the October rally failed to break higher and instead rolled to the downside. Since that trend change price has made lower lows and steady bear flag formations.

We don't need to be in a hurry here as we still see lower highs and lower lows on all three major timeframes. But price is now approaching some interesting support and the patterns that are forming are suggestive of a healthy pullback rather than a long-term trend failure.

Hourly

  If we continue down to the intra-day action on the 1 Hour chart we can see the start of a possible trend change. But we must be careful not to get caught in a similar situation as a few weeks ago. In mid-October the price action tried to firm up and got above both a rising 20/50 SMA. Yet it failed to make a higher swing high and instead led to much more downside. This is why we really want to see the prior week's high at 95.30 taken out. That would suggest this potential low may hold and the trend could be ready to turn higher.

--The bottom line is Alibaba is giving multiple indications of more upside to come in the intermediate term once this pullback runs its course. We don't have enough evidence at this moment to plow into the stock but we could begin building a position soon if conditions suggest a low is really in place.

The first signal that the turn may be ready would be to break above the 95.30 resistance area. A move through that and I will begin to nibble at a position. Should we then see a weekly close above the prior week's high I will add more on the confirmation.

Thanks for reading
-ZT