The bullish sentiment for Alibaba (US: BABA) is strong especially after breaking the key resistance of 196.08. We believe that the stock will continue higher beyond 210.00.  However, based on the technicals, we expect the stock to enter a temporary correction.

1. The recent price action suggests that the bullish momentum is halting. The hanging man on last Friday shows price exhaustion. This was followed by Monday’s shooting star below the resistance of 200.98, again confirming the stock bearish correction.
2. Both the hanging man and the shooting star shows signs of rejection of the upper Bollinger bands.
3. RSI bearish divergence together with oversold signal above the 60 oversold line confirms the exhaustion of the bull.

*Timeline of the technical call for BABA is between 1-2 weeks.

*As the short call is a counter-trend trade, traders should exercise caution by putting tight stop loss. Overall, the stock is still in a bullish trend with potential buying at the support zone highlighted in the chart at 190.62 region.

CHART LEGENDS

Bollinger bands

Standard deviation = 2

Red dotted line = Upper Bollinger band

Blue dotted line = Middle Bollinger band

Green dotted line = Lower Bollinger band