Alibaba Group Holding Ltd (NYSE: BABA)

Alibaba Group Holding Limited, through its subsidiaries, operates as an online and mobile commerce company in the People’s Republic of China and internationally. It operates Taobao Marketplace, an online shopping destination; Tmall, a third-party platform for brands and retailers; Juhuasuan, a group buying marketplace; Alibaba.com, an online wholesale marketplace; Alitrip, an online travel booking platform; 1688.com, an online wholesale marketplace; and AliExpress, a consumer marketplace.

Take a look at the 1-year chart of Alibaba (NYSE: BABA) below with my added notations:

1-year chart of Alibaba (NYSE: BABA)

Over the last 5 months BABA has formed an inverse head and shoulders reversal pattern (green). I have noted the head (H) and the shoulders (s) to make the pattern more visible. The stock’s neckline resistance is at the $85 level (Red). BABA will confirm its H&S if it breaks through the neckline.

Keep in mind that simple is usually better. Had the inverse H&S pattern never been pointed out, one would still think BABA was moving higher simply if it broke through the $85 resistance level.

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The Tale of the Tape: BABA has formed an inverse head & shoulders pattern. A long trade could be entered on a break through the $85 level.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Follow me on Twitter: @cmtstockcoach