Alibaba Inc (BABA, 9988): Technical Outlook, Expecting Further Mark Up
The chart of Alibaba Group Holdings Ltd. (BABA) appears to follow the Wyckoff market cycle, with clear distribution, markdown, and possible accumulation phases. Below is a detailed breakdown of these phases based on the Wyckoff methodology:
1. Distribution Phase (2020 - 2021)
During this period, the stock was in an uptrend before forming a distribution range, where supply began to outpace demand. The distribution phase is characterized by:
Lower highs and higher lows, indicating weakening bullish momentum.
Failed breakouts, which suggest smart money unloading shares to retail traders.
Increased volatility and volume spikes, which often precede a major markdown.
As the price failed to sustain higher levels, the Wyckoff sign of weakness (SOW) became evident, confirming the end of the uptrend.
2. Markdown Phase (2021 - 2022)
Following the distribution, the stock entered a markdown phase where supply overwhelmed demand, leading to a prolonged downtrend. Key Wyckoff concepts observed in this phase include:
Series of lower lows and lower highs, confirming bearish control.
Breakdown below key support levels, showing no significant demand at lower prices.
Sharp downtrend channel, illustrating continuous selling pressure.
This markdown phase continued until the stock reached a major support zone, where signs of accumulation started appearing.
3. Accumulation Phase? (2022 - Present)
Currently, BABA appears to be in a potential accumulation phase. Wyckoff's accumulation phase is where institutions and smart money gradually buy shares at discounted levels before a new uptrend. Signs of accumulation include:
A trading range forming between $60 - $125, suggesting institutional buying.
Increased volume at support levels, which indicates accumulation rather than panic selling.
Higher lows within the range, a sign of diminishing supply.
Events Occuring within Accumulation:
Preliminary Support (PS): Initial buying interest seen at the beginning of the range.
Selling Climax (SC): The point where extreme selling pressure occurs, often leading to a significant bounce.
Automatic Rally (AR): The first rebound from the SC, marking the upper boundary of the range.
Secondary Test (ST): Retests of support levels, ensuring supply is drying up.
Spring? If the stock experiences a false breakdown below the range and quickly reclaims levels, it would signal a strong Wyckoff Spring, confirming the uptrend.
Final Thoughts
The key level to watch is the upper boundary of the accumulation range (~$125). A breakout with strong volume and demand would confirm the transition into the markup phase, potentially leading to a new uptrend.
However, if the stock fails to break above resistance and falls back into the range, it could signal continued consolidation or a potential re-distribution, leading to another markdown.
Summary:
Bullish case: A confirmed breakout above $125 could lead to a new uptrend.
Bearish case: Failure to hold above $125 and a breakdown below $75 could signal further downside.