Alibaba (BABA) Stock Price and Forecast: BABA shares rally as RSI and CCI flash oversold signals

• BABA shares saw oversold signals from the Relative Strength Index (RSI) and Commodity Channel Index (CCI).
• BABA retraces up to 9-day moving average resistance.
• BABA remains in bearish formation below $220.

Alibaba (BABA) is the Chinese Amazon (AMZN), and with China being a country of nearly 1.5 billion people, that is an impressive marketplace.

BABA is one of China’s most successful internet companies and has a similar business model to Amazon with an online retail marketplace, a cloud business and a stake in a fintech e-payments business called ANT Group. ANT Group was due to IPO in late 2020 but was pulled at the last minute after BABA and ANT founder Jack Ma gave a speech in which he appeared to criticize Chinese regulators and the banking industry. The IPO (Initial Public Offering) was canceled, and BABA's share price struggled, losing over 30% of its value.

Alibaba (BABA) reported first-quarter 2021 results before the open on Thursday, May 13. Revenue for the quarter was 187.395 billion yuan, an increase of 64% and ahead of the forecasted 180.41 billion yuan. The quarterly net loss was 7.6 billion yuan due to a fine from the Chinese regulator. Earnings per share adjusted (EPS) were $1.58, missing the $1.78 estimate.

Mobile monthly average users were 925 million, up 23 million from December.

BABA stock forecast

BABA shares had traded in a large triangle formation and broke out to the downside on May 7. This was a bearish signal with $211.23 as the next support level to target. This level was also broken as the market reacted poorly to the earnings number on Thursday, May 13. BABA shares closed down over 6% after the earnings release. Investors focused on the loss, which was attributable to a fine from Chinese regulators. This is a source of continuous concern. Post earnings release, Keybanc and Raymond James lowered their price targets, while Cathie Wood of ARK Invest fame sold stock.

A sustained break of $211.23 will bring $189.53 as the next target. BABA broke back above the $211.23 level on Tuesday and has stalled at the 9-day moving average. I use the exponential moving average as it gives slightly more weight to more recent prices, but there is not a huge difference between the exponential version and the simple one.  The exponential is quicker to adapt to the trend as it gives more weight to the more recent price. For longer term moving averages such as 100 and 200-day, the simple moving average is better as it is a long-term view.

At $189.53 there is a small buy zone here (highlighted in blue), and this may be a place to initiate a long position. Basically, a buy zone is where the price has appreciated, stabilized and then appreciated again. The logic is the price has moved up, stalled but not fallen. More buyers have powered through any sellers and taken the price higher. Basically, it is a consolidation zone but confirms the trend. In this case, the zone was retested in early May 2020 before buyers again pushed BABA out of the zone. 

For now the trend is still firmly bearish until $219.97, but both the Relative Strength Index (RSI) and Commodity Channel Index (CCI) have flagged oversold conditions on Tuesday, so it is better to watch for a retrace. If BABA breaks the 9 and 21-day moving averages and gets through $219.97, it is back in neutral territory, ending the bearish trend. BABA is not bullish until it breaks the resistance at $237.75.

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