Alibaba Group Holding Limited (BABA) shares fell nearly 3% in early trading on Tuesday in a continuation of the downtrend dating back to late July. The intensifying trade war between the United States and China has led to concerns of a slowdown in the volume of goods passing through Alibaba's marketplace. Pinduoduo Inc. (PDD), a competitor, also went public on the NASDAQ in late July, raising $1.63 billion in the second largest initial public offering by a Chinese firm this year.
Despite the bearish concerns, some investors have been building their stakes in Alibaba while prices are cheap. Jana Partners was a buyer during the second quarter, according to its 13F SEC filing. Alibaba also continues to forge partnerships with companies, ranging from Ford Motor Company (F) to Starbucks Corporation (SBUX), while continuing to invest in artificial intelligence and other next-generation technologies to solidify its position in the market. (See also: How Starbucks Can Profit From Alibaba Alliance.)
From a technical standpoint, Alibaba stock broke down from a symmetrical triangle pattern in late July and S1 support at $179.41 in early August. The stock trades near S2 support levels at $171.59 with an oversold relative strength index (RSI) at 32.12 and a bearish moving average convergence divergence (MACD). These indicators suggest that the stock could see some near-term consolidation before any move lower.
Traders should watch for some consolidation between S1 and S2 support levels over the near term. If the stock breaks out from S1 resistance, traders should watch for a move toward the 200-day moving average at $186.85. If the stock breaks down from S2 support, the next major support is near the trendline and prior reaction lows of around $166.29. (For more, see: Alibaba Faces More Declines as Trade War Heats Up.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.