A Weaker Yuan May Sink Alibaba And JD.Com
May 13, 2019 1:02 PM ET|17 comments | About: Alibaba Group Holding Limited (BABA), JD
Mott Capital Management
Mott Capital Management
Long only, Growth, registered investment advisor, investment advisor
MARKETPLACEReading The Markets
(6,782 followers)
Summary
Alibaba and JD are being hit by rising trade tensions.
The Chinese Currency is weakening vs. the dollar.
The falling FX is resulting in the two stocks to fall.
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The situation for Alibaba (BABA) and JD.com (JD) has deteriorated mightily over the past few days, with the trade tensions rising dramatically just since Friday. As a result, the currency for China, the yuan, has started to weaken and could cast a shadow over these two companies.
The Chinese yuan has weakened in recent days to roughly 6.88 from 6.70. The yuan is likely to continue to decline in the coming days and weeks, and it may fall to around 7. That could weaken both JD and Alibaba's stocks, and their revenue and earnings outlook. The technical chart suggests that both stocks are now breaking down.
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The yuan has rapidly risen, and the chart suggests it can continue to weaken to nearly 7. The chart shows that the currency has declined to as far as 7 on two occasions since the beginning of 2017 and would serve as resistance.
Alibaba
Alibaba has turned negative in a hurry with the stock falling below technical support at $179.50. The stock could continue to fall to its next level of technical support at $166.60 from it price of $178 on May 10. Should the stock fall below that level, there's no support again until $151.60. The relative strength index for the stock has started to trend lower once again, suggesting that bearish momentum is taking control. Additionally, the chart shows that the stock has been falling on increasing volume levels, indicating that more sellers are entering the name.
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