Is Alibaba Immune to Coronavirus? RS Suggests It May BeRelative Strength shows when a stock is outperforming peers. It can be very useful when the market corrects, like we saw last week. Crisis often turns into opportunity once the dust settles.
One of the biggest surprises from RS recently is the strength in Chinese names. Despite coronavirus originating on the Mainland, many of the country's big liquid stocks have corrected less than the broader market.
Alibaba is a case in point. When the S&P 500 and Nasdaq-100 were crashing down toward their 200-day simple moving averages (SMA) last week, BABA didn't even come close to dropping that much. That's a classic sign of relative strength.
The e-commerce giant broke out of a long basing pattern in late 2019 and quickly surged to new highs. It then consolidated in price, and now is completing an ABC flat pattern, or double bottom. Its swings have also been much tamer than the rest of the market.
Another positive last Friday was the slight undercut of January's support around $199.50. When a stock undercuts support it often takes out obvious stops and shakes out the weak hands. The result is a false breakdown.
Traders looking for an entry in BABA may want to look for a breakout above the 21-day and 50-day SMAs, which are slightly above the current price range.
