Is BABA a buy at 95??

Alibaba  (BABA)

At the beginning of the month I began to notice that BABA spent most of its time between $87 and $90.  That was comforting since I think BABA will be a good investment.  But I am the guy who always reminds my readers to, "Trade What You See... Not What You Think, or Feel, or Hope, or...".  So in order to follow my own guidelines, I had to begin to evaluate the "risk" as BABA dropped below that $87 area.  If you read my note on the graph you will see my rationale.

 

This is a DAILY chart of Alibaba



Click for a larger chart of BABA



The gist of my thought process is that BABA came public at $68 (IPO price) and jumped into the $90's on the first day.  When it didn't continue higher I figured consolidation is better than going down.   But as it trended lower I needed justification to stay positive.  My justification is typically technical analysis of some sort.  And notice I said, "stay positive" and not stay long.  I do my best not to be long a stock that is trending lower on the daily.

In this instance I looked to Fibonacci Retracement as my justification.  I couldn't draw the Fib lines on the chart because BABA never actually traded at $68.  So after some simple mathematics I realized that the 38.2% retracement line was between $83 & $84.  A stock that bounces off the 38.2% retracement is typically a strong stock.  So stay positive as long as it bounces around $83.

You can also notice the red downtrend line on the graph from 10/9 to 10/15.  On 10/15 BABA's daily candle closed above the red downtrend line.  That is one sign that it may be time to "go long".  The next sign was when BABA's price crossed above the daily high from 10/15. 

If you did buy on 10/16, how could you have protected yourself from a false breakout?  You could have used the 10/16 low of about $84.  Anyone who did this is still in the stock today. 

So what now?  Do you buy in here?  Wait for a dip?  Buy puts or short (it's the title of another one of my posts) because "it has to come down"?  Some people actually trade like that... 

Take a look at an hourly chart of BABA.  The price has been above the 21 hour ema since 10/16.  Much of that time the price has actually been above the 8 hour ema.  If you want to buy in here, I would do it on a bounce off the 8 or 21 hour ema.  If you want to wait for a dip, I'd say look for a dip to a horizontal line where resistance became support.  And if you want to buy puts or short, you should wait for a break below the uptrend line that started back on 10/15.  Your target could be the $85ish area.

Whatever your decision, good luck to you!  Decide what you see in the chart and invest accordingly.  Use a stop loss so you don't loose too much money if you are wrong.  No one is perfect.  If you get out of an investment because you made a mistake, you can always come back and try again another time.  But if you don't get out of the investment you may not have any money left to try again.

Trade What You See... Not What You Think, or Feel, or Hope, or...

The Trend Is Your Friend...  Until Its Not

Limit Risk & Protect Profits

 

Quick Post on YAHOO! ($YHOO)

Everyone is talking about YHOO & AAPL this week.  As you may have noticed, my last couple of posts have focused on the trend lines in weekly charts.  For a change, here is a quick post on an hourly chart of YHOO.

YAHOO!  (YHOO)

Here is an HOURLY chart of YAHOO!



Click the chart for a larger chart of YHOO



• Remember this is only an hourly chart.  Why would I repeat myself?  Because an hourly chart gives very short term signals that may not last very long.  But the trend lines look the same on short term charts and long term charts.  Just remember where your signal came from and you will be ok.

• Inside the shaded box - Notice that YHOO crossed above the red DT line yesterday afternoon.  The opening candle of today tested the red DT line but didn't break it.  That was a good indication that it could be bought.  Small size initial position was prudent.  The opening candle high of today also matched the top of a candle from yesterday afternoon.  So that tells us there is some resistance at $43ish.

• UT 1 has been a good trend for a week now.  I like it as my "line in the sand".  But it is interesting to note that, after yesterday's low, UT 2 began to take shape.  It is well defined at this point and can be used as a "tight stop". 

• Although these are short term signals only to be used for short term trades.  If you want to try one you could go long close to but above UT 2 and use UT 1 or UT 2 as your stop.  If the trade doesn't work out just get out of the way.  If it does work out, you may have a descent winner on your hands.

• Things to look for...  There is resistance at $43ish so expect some turbulence there.  The price of YHOO has to stay above UT 1 to stay in the trade.  Once YHOO gets above $43, I would expect it to go to $44ish.  There may be some turbulence there too as it would match the high from a couple days ago.

Trade What You See...  Not what you think, or feel, or hope, or ...

The Trend Is Your Friend... Until Its Not

Protect Profits & Limit Risk