Don't Ignore This Chart!

BABA: Breaking Down or Reversing With Positive Divergence?

Tom Bowley

Tom Bowley

Chief Market Strategist, EarningsBeats.com

On Monday, BABA closed at 84.00, its lowest close since its IPO in September.  However, that close was very close to support and BABA is currently oversold with its RSI below 30 and its stochastic reading at 11.  Note there's a long-term positive divergence that's formed on this low, suggesting that downward momentum is slowing.  For me, the combination of price and volume trumps all other indicators though.  Today's volume is already approaching its 90 day moving average - in just the first 75 minutes of trading.  It's important to watch the action here.  Why?  Because no technical trader in their right mind would buy a stock like this that's breaking down on heavy volume.  If we see a reversal later today, it'll likely be due to market makers providing liquidity and committing on the long side.  If you need to know one thing about market makers, it's that they generally make money.  Given the heavy volume, the long-term positive divergence, the test of price support and the oversold RSI and stochastic, a reversing candle at the close today could become a nice short-term trading opportunity on the long side.  Failure to reverse, though, suggests we wait on such a candle before committing.  Here's the chart:

Happy trading!

Tom Bowley

Tom Bowley
About the author: is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More