BABA is bouncing around its multi-year low of $112 today, which has been hit twice in the last two months. I don’t put a lot of credence in technical chart analysis, but some people do, and looking back at the chart, there isn’t much ‘support’ at this price: on the way up a couple years ago, the price just blew through this area. The next are where the price has support is down at ~$87. If we bounce off $112 again, then it would appear support is building at this level.
The stock seems a great value at this price, but it’s being weighed down by numerous uncertainties including competition, the Chinese macro economy, and Chinese government regulation, etc …, so it seems plausible it could fall further. I’m still holding a somewhat overweight position in BABA from earlier, more expensive purchases and am not adding more at this time. If it were to break through the tentative support at $112 and head down toward prior support at $87, I think I’d pull the trigger on another helping.
What is magical about $112 and $87 ? In your experience does this work ? Sounds gibberish to me.
That’s a fair take. As I said I don’t put a lot of credence in technical/chart analysis myself, but the theory on, for instance, the $112 price point gaining importance is that the stock has dropped to that point a couple times before, then recovered, and that price movement reveals market thinking and psychology giving support at that level. There are market participants who act on this kind of thinking, so it can take on aspects of a self fulfilling prophecy, IMO, at times, if nothing else.
In my experience, I’ve seen price action that backs up the technical analysis take, at times, not at some others. I know it’s far from reliable.
When I think about this for my own potential use, it’s only as an add-on to the fundamental analysis of the business. In this case I love the business and already have a substantial position, but there are some risks that make me not want to double down at this time. I don’t really believe the prior price action establishing a low ~$87 years ago gives that number any real meaning, but I also think it feasible the price could drop that low, and I’m using it as a marker for ballpark when I might want to buy more if it does.
There are market participants who act on this kind of thinking, so it can take on aspects of a self fulfilling prophecy, IMO, at times, if nothing else.
The technical analysis is based on the price action. But the price action itself is dictated by fundamental analysis. There are people who find stock is valuable at certain price level, and when it gets there they come in and buy. That’s how you get the support.
The number of people who buy based on TA support is far less than the folks who come in to buy based on fundamentals. That’s also the reason why when an material event takes place like earnings, M&A, or a product failure, competitor product, or pandemic, those support points vanish or melt like ice in a hot summer.
That’s why I prefer TA for long-term than short-term. In short-term they are very noisy.
The technical analysis (TA) is based on the price action. But the price action itself is dictated by fundamental analysis. There are people who find stock is valuable at certain price level, and when it gets there they come in and buy. That’s how you get the support.
Certainly fundamental analysis is a significant part of what creates price action, but there are also huge amounts of money controlled by traders who don’t look at fundamentals at all, who follow momentum, TA, and who knows what combination of indicators.
For BABA, the news has been unrelentingly negative for months, most recently we’re hearing about the real estate collapse in China and its potential ramifications on the Chinese economy, where the vast bulk of BABA’s business takes place, and we continue to hear about increasing government regulation.
So, this ongoing patter of negative news will be weakening the conviction of some of the fundamental buyers who’ve previously rushed in as the stock hit $112 and just below. Last time it was this low, the following day it popped to ~$124 on strong volume. Today on open, volume is lower than yesterday (which was also lower than in the prior low) … looks like that support is not there this time and the stock is headed down, and this is where the self-fulfilling prophecy part can come into play as market participants see these technical indicators and don’t come in to buy now as they expect a lower price, or they sell existing holdings, or sell short.
If you are a trader, you will not touch BABA right now. If you use TA, you know there is so much uncertainty surrounding the name, you cannot trade on TA, you need to have a fundamental conviction. TA works best for steady state.
Still buying in small chunks. And purchased another 100 first thing. That’s what I do with investments I already hold and still like the valuations of.
I don’t really believe the prior price action establishing a low ~$87 years ago gives that number any real meaning, but I also think it feasible the price could drop that low, and I’m using it as a marker for ballpark when I might want to buy more if it does.
“I don’t really believe the prior price action establishing a low ~$87 years ago gives that number any real meaning, but I also think it feasible the price could drop that low, and I’m using it as a marker for ballpark when I might want to buy more if it does.”
Is there a tool telling you the $87 number ?
Just looking at the long term chart for bottom of prior dips, the stock dipped to just below $87 in Dec. 2016. That’s the next bottom/low that was established below current levels. FWIW, probably not much.
Charting and short term trading which go hand in hand seems to have had somewhat of a revival recently, long bull market perhaps and a new generation of investors?
I’ve not looked into it myself (charting) but all the books I’ve read about and by investment greats say it’s a waste if time and akin reading tea leaves. I discarded the idea.
No one knows. Looking forward to the earnings update Monday.
“ Charting … is a waste of time and akin reading tea leaves. I discarded the idea.”
I wouldn’t develop an investment strategy around charting, but it does have value in the same way that behavioral economics has value to understanding economics better. Charts capture moments when investors collective behavior changed, so those turning points tend to carry some psychological weight as stock prices drop significantly.
The recent discussion of Berkshire breaking resistance around $300 as a good entry point has proven prescient and suggests a way in which charts can be useful, if not necessarily predictive.
Charting and short term trading which go hand in hand seems to have had somewhat of a revival recently
Charts work very well with long-term trends, than short-terms. Short-term there are lot of noisy swings. My best long-term chart batter is Microsoft, WMT. Look at how multi-year base breakout on these names resulted in massive gains. This is where the charts help, when combined with fundamental analysis, you get a decade long ride to multiply money many, many times and you can bet big.
For those looking into these charts, the base is from 2000 to when the 2000 high’s are taken out
Separately, here is the chart for Berkshire. This is for those who predict Berky price will like clockwork go up. Stock prices can easily go down by 30% or 35% for no-reason, that can and will happen to Berky too.
So the number $300 is important…all while I look at a 6 month chart which to me makes $300 meaningless while I see that Berkshire bounced off a price of about $275 about 50 times! Why isn’t our sellable chart model based on $275?
Round figures? Can you prove they are more chart obsession warranted?
So you’re saying that the chart shows that investors have psychologically anchored themselves to $300. Ie they sell off when it’s hit and subsequently $300 is a new floor later on demonstrated by a buying support level? Why does it switch and so quickly?
Is this not just hindsight (also because it’s 300) perhaps looking into something that isn’t really there.
To me it just looks like a wiggly line going up and down.
As I said I don’t put a lot of credence in technical/chart analysis myself, but the theory on, for instance, the $112 price point gaining importance is that the stock has dropped to that point a couple times before, then recovered, and that price movement reveals market thinking and psychology giving support at that level. There are market participants who act on this kind of thinking, so it can take on aspects of a self fulfilling prophecy, IMO, at times, if nothing else.