(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Alibaba's Group Holding Ltd. (BABA) has plunged by more than 33% from its 2018 high, and technical analysis suggests the stock may fall 11% further. Options for expiration this January are also bearish. The number of bearish options bets far outweighs bullish ones by about 3 to 1. (See: Alibaba's Stock May Sink 8% To Fresh 2018 Lows.)

The bearish technical analysis and options betting comes as analysts continue to slash their earnings estimates. Over the past month, analysts have cut their earnings and revenue estimates for the upcoming fiscal second quarter results. (See: Why Alibaba’s Stock Faces More Declines Ahead.)

BABA Chart

BABA data by YCharts

The Stock Is Melting

The chart shows that the stock is trading around technical support of $142. Should the stock stay below that level, it could drop as low as $125. That would be a decline of about 11% from the stock’s current price of around $140.50. 

Another negative sign is that momentum is still leaving the stock as measured by the relative strength index (RSI). Volume levels have been rising as the price has been declining, which suggests that there are more sellers in the stock. 

Lower Estimates

The bearish sentiment reflects what is expected to be a weak quarter. Analysts now see fiscal second quarter profits falling by almost 7% versus the same period a year ago.

Forecasts for the full year spell trouble too. Earnings are now forecast to grow by 8% in fiscal 2019 compared to prior estimates of almost 24%. Meanwhile, revenue growth estimates have fallen to 47.5% versus estimates in July for a 57% increase. 

BABA EPS Estimates for Next Fiscal Year Chart

Targets Too High

Analysts' average price target for the stock may come down sharply. Today, that target is $226.90, which is nearly 61% higher than the trading price. Trade tensions between the U. S. and China continue to weigh on Alibaba as the value of China’s currency continues to fall. That means Alibaba's shares may see even more declines over the longterm. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.