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Monday, February 07, 2022

Alibaba Ensconced In Chaos Zone

Alibaba (BABA) has plunged into what I call a 'Chaos Zone,' as shown on the following monthly chart.

As you can see, it's nearing its IPO price of 92.70 in September 2014, after reaching a high of 319.32 in October 2020.

The following article mentions a scenario that may occur.

Before we see that happen, if at all, we may see BABA drop somewhat further on this rumour, then reverse sharply and possibly retest the 160.00 level, or thereabouts. I'd look for a large volume spike, together with an extreme ATR print (based on a value of one period, as shown), to confirm such a V-bottom reversal had occurred at a lower price level.

It may be that, during such a reversal to the upside, SoftBank begins to dump its shares, in which case, we'd likely see volatile price moves in both directions...possibly within the upper half of the 'Chaos Zone,' or around the 120.00 level. Price may spin around 120.00 ('thread the needle') before it moves erratically higher toward 160.00.

Failure of BABA to move and hold above 160.00, on increasing volumes, may signal much further weakness ahead, with price, ultimately, retesting 80.00, or lower.

So, there is a lot of room for wild price swings to occur within BABA's 'Chaos Zone,' along with the release of wild rumours about SoftBank, or something/someone else.

Buyer beware!

P.S. SoftBank's own stock (SFTBY) has dropped considerably from its 2021 high of 50.00 and is mired in its own 'Chaos Zone,' as shown on the following daily chart.

It's in solid downtrend and is still under the bearish influences of a moving average Death Cross that formed in mid-2021.

A drop and hold below 20.00 could force a retest at 17.5, or lower at 15.00

A drop and hold below 15.00 could prompt its sale of some or most/all of its stake in BABA, as described above...or, even as soon as a break and hold below 20.00 on increasing volumes.

The monthly chart of SFTBY shows a macro view of price action, the 'Chaos Zone,' and other major support and resistance levels.

Watch for any extreme spikes in the volume and the ATR indicator (shown with an input value of one period) to, potentially, verify a trend reversal after any further plunge lower in price on this timeframe...particularly if it breaks and holds below 20.00 with force.

The following daily ratio chart of SFTBY:BABA shows that there has been a whipsaw struggle for relative strength between the two since mid-2018.

This ratio has been trading in its own 'Chaos Zone' since the beginning of 2021.

A rapid plunge on this ratio could spell big trouble for both stocks. A drop and hold below 0.150 could be catastrophic for both, so keep an eye on this.

In any event, they're both weak and mired in their own 'Chaos Zones.'

Expect volatile churn to continue until we see clear breakouts or breakdowns and holds, with conviction...on BABA, SFTBY, and SFTBY:BABA.