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Monday, 07/26/2021 12:56:37 PM

Monday, July 26, 2021 12:56:37 PM

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Trading Alibaba and JD.com as China Cracks Down on Tech
By: TheStreet | July 26, 2021

• Alibaba and JD.com are under pressure amid further crackdowns from Chinese regulators on tech companies. Here's the trade.

Alibaba (BABA) and JD.com (JD) both were under pressure Monday as China continues its crackdown on tech.

Alibaba was hitting new 52-week lows, while JD.com was nearing new 2021 lows. Others, like TAL Education (TAL), were getting hit hard too amid China’s potential actions.

The Chinese government hasn't made it easy for these firms.

In late 2020, authorities cracked down on Ant just days ahead of its IPO. That sparked the decline in Alibaba - which owns a one-third stake in Ant - as the stock has been rocked from its fourth-quarter highs.

Even after settling a record fine with authorities, Alibaba hasn’t been able to regain its footing.

Many investors will classify this group as a “no-touch.” For others, they may be scouring for opportunities. Let’s look at the charts for both Alibaba and JD.com.

Trading Alibaba Stock


Weekly chart of Alibaba stock.

Chart courtesy of TrendSpider.com


Many were hoping that Alibaba’s record fine in April would be the end of the stock's decline. Shares rallied on the news, but the 21-week moving average was resistance. It was resistance in June too, indicating the downside wasn’t over yet.

At the time, the $210 to $212 area was still acting as support. However, that level flipped to resistance even though Alibaba stock was giving us a nice bounce from the 200-week moving average.

With Monday’s gap-down, Alibaba is below the prior 2021 low at $198.26, as well as the 200-week moving average.

I have been more bullish on Alibaba lately, expecting the fundamentals to eventually win out. However, I haven’t been blind to the poor technicals either.

The only real trade that stands out? Reclaiming the prior low at $198.26. While that leaves plenty of overhead hurdles in place - like the 200-week moving average, then the $204 level - it’s the only real way to measure our risk.

Reclaiming $198.26 lets bulls use Monday’s low as the pivot. Below that and shares can keep moving lower...

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