Alibaba Group Holding Limited (BABA) shares fell more than 4% during Monday's session after China escalated the trade war with the United States by devaluing its currency. The renminbi fell below the benchmark seven-to-one U.S. dollar level on Monday morning, which many analysts believe was in retaliation for additional U.S. tariffs announced last week. A weaker renminbi makes China's exports cheaper to the rest of the world and more competitive against the United States.
Despite the trade war concerns, Jefferies initiated coverage on Alibaba with a Buy rating and a price target of $216 per share. Analyst Thomas Chong believes that the company has multiple growth drivers over the coming years with strong cash flow from its core marketplace business. In the near term, the analyst believes that Alibaba enjoys secular momentum amid China's ongoing consumption increase as it ramps up in lower-tier cities and in local services.
From a technical standpoint, the stock extended its decline from reaction highs of around $180.00 in July toward its reaction lows of around $147.50 made in late May. The relative strength index (RSI) fell to oversold levels with a reading of 27.07, but the moving average convergence divergence (MACD) accelerated its bearish downtrend. These indicators suggest that the stock could see some near-term consolidation before resuming its move lower over the coming sessions.
Traders should watch for a move lower to retest reaction lows of around $147.50 over the coming sessions. If the stock breaks down from those levels, traders could see a move toward trendline support at around $130.00. If the stock rebounds from those levels, traders should watch for a move higher toward the 50- and 200-day moving averages at around $165.00, although a near-term rebound seems unlikely to occur.
The author holds no position in the stock(s) mentioned except through passively managed index funds.