Alibaba Group Holding Ltd (BABA)

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Alibaba Stock Sinks With Chinese Tech After NSA Warning
By: Schaeffer's Investment Research | November 9, 2018

Today's losses come ahead of Sunday's Singles Day event

Embattled BABA is at risk of bearish backlash from analysts

Shares of Alibaba Group Holding Ltd (NYSE:BABA) are plunging alongside other U.S.-listed Chinese tech stocks, after the National Security Agency (NSA) accused China of violating a cybersecurity agreement made back in 2015. The NSA threatened to impose more sanctions if the issue was not resolved. In response, BABA is down 3.5% at $143.74 in early trading, ahead of the e-tailer's annual Singles Day event this Sunday, Nov. 11.

This negative price action is just more of the same for Alibaba stock, which has been stuck in a channel of lower highs and lows since its mid-June peak north of $211. More recently, breakout attempts have been halted near $150 -- currently home to BABA's 40-day moving average, which has served as a long-term layer of resistance. The equity is now 16.6% lower year-to-date.

Short sellers have been in the drivers seat during this sell-off. Short interest on the Chinese tech concern rose 3.3% during the past two reporting periods, and now accounts for more than 13% of the stock's total available float. At BABA's average pace of daily trading, it would take shorts a full week to buy back their bearish bets.

Despite the stock's technical underperformance, analysts are optimistic. As of last night's close, all 19 covering firms were sporting a "buy" or better recommendation on BABA. Plus, the stock's average 12-month price target of $206.25 is a 43.4% premium to current levels. Should the shares continue to struggle, a round of downgrades and/or price-target cuts could strengthen headwinds for Alibaba.

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