Watch 17090 resistance on Alibaba as Q3 earnings release looms

Watch 70.90 resistance on Alibaba as Q3 earnings release looms

Alibaba Group is China’s equivalent of the U.S. e-commerce juggernaut, Amazon will announce its Q3 2018 earnings on Wed, 30 Jan before U.S. market open. Consensus estimate is pegged at $1.36 EPS (earnings per share) and in the previous Q2 2018 earnings release on 02 Nov 2018, Alibaba has managed to beat earnings expectation where it recorded $1.11 EPS versus a consensus estimate of $1.08 EPS.

However, Alibaba has lowered its fiscal 2019 revenue guidance by 4% to 6% to $54.59-$55.75 billion due to delayed monetization on its core commerce retail business where close to 60% of its total revenue is derived from the China market. China’s consumer spending on retail and discretionary products has started to decline since late 2017 on the backdrop of a worsening macroeconomic conditions in China and the uncertainty over U.S. and China trade relation.

Despite its efforts to diversify its revenue flows from its core China commerce retail business division into cloud computing and digital media/entertainment, only 7% of Alibaba’s total revenue came from outside of China based on its Q2 2018 earnings report.

Revenue growth for its China commerce retail business is likely to face several headwinds in Q3. Its recent flagship “Single’s Day” online shopping event held on 11 Nov 2018 recorded a lesser growth rate of 27% y/y versus 39% y/y in 2017.

Medium-term technical outlook (1-3 weeks) on Alibaba Group (BABA)

Key technical elements

• The share price of Alibaba (BABA) listed on the NYSE has managed to stage a rebound of 23% to print a high of 160.50 on 25 Jan 2019 after a retest on 30 Oct 2018 swing low of 129.77 on 24 Dec 2018.
• Since the 30 Oct 2018 low of 129.77, BABA has continued to evolve in a sideway range configuration with the range resistance at 170.90 which also coincides with the pull-back resistance of the former major “Expanding Wedge” support bearish breakdown (see daily chart).
• The daily RSI oscillator has started to stall at a significant descending resistance at the 64 level which corresponds to previous major swing highs seen in the price action of BABA on 26 Jan 2018 and 05 Jun 2018 respectively.
• The on-going rebound from its 24 Dec 2018 low has been accompanied declining volume.
• Elliot Wave/fractal analysis suggests that the price action configuration since 30 Oct 2018 is likely to be a potential corrective “sideways/flat” range configuration where the inflection level may be 170.90 (confluences with a Fibonacci retracement/expansion cluster) for another potential bearish impulsive down move to resume.
• The next significant medium-term support rests at 119.15/116.20 which is defined as the 61.8% Fibonacci retracement of the entire primary up trend from Sep 2015 low to Jun 2018 all-time high of 211.70 and the former major swing high area of 13 Nov 2014.

Key Levels (1 to 3 weeks)

Pivot (key resistance): 170.90

Supports: 130.00/129.77 & 119.15/116.20

Next resistance: 197.60/200.00

Conclusion

If the 170.90 key medium-term pivotal resistance is not surpassed on BABA, it is likely to stage a decline to retest the 130.300/129.77 range support in place since 30 Oct 2018. A break below 129.77 opens up scope for a potential fresh impulsive down move to target the next support at 119.15/116.20 in the first step.

On the other hand, a clearance above 170.90 invalidates the bearish scenario for an extension of the corrective rebound towards the next resistance at 197.60/200.00 (the gapped down from 22 Jun/25 Jun 2018 & the 25 Jul 2018 swing high).

Charts are from eSignal