Weekly:
(click on the chart to enlarge)
After the 7/7/15 low, the price has moved back above the support level of 80. Will this recent bounce off the recent low be the beginning of a trend reversal or just another oversold bounce? Let’s take a closer look at the recent price action to determine if this bounce will be different from the bounce after the 5/5/15 low.
On July 7, the stock opened at 79.45 (see intraday 5 minutes chart), 0.77 below previous session’s close of 80.22. It dropped precipitously to 76.21 within the first 35 minutes of trading, a fall of 3.24. After this drop, buyers stepped in and lifted the price back above the opening price. BABA ended the session with a closing price of 79.56, a loss of 0.66 for the day and 0.11 above the opening price. The price action shows the buyers are in control.
In the next trading session, price opened at 76.44 (see intraday 5 minutes chart), a gap down of 3.12 from the previous close and near previous session low of 76.21. Instead of a precipitous drop like previous session, the buyers immediately stepped in after the price dropped to 76.22 within the first minute of trading, a penny above the previous session low. In addition, the buyers lifted the price to 78.41 in the first 10 minutes of trading, a 2.19 upward move. This price action clearly indicates the buyers remain to be in control. Although the session closed at 78.01 with a loss of 1.55, but the price stayed near the opening high. This is the level where the price ended from the lifting by the buyers in the opening minutes. Another indication the buyers are in control.
Intraday (5 minutes):
After the buyers have regained control, BABA has broken above the short term declining trendline and has been forming a series of higher high and high low on an intraday time frame (see intraday 78 minutes chart).
Intraday 78 minutes:
To determine if the recent intraday price action could lead to a trend reversal, an intermediate trendline is drawn on the daily price chart using the post IPO high of 120 and the May 5, 2015 high of 95.06 as the pivot points. The extension of this trendline projects a near term resistance level around 87 and it is in confluent with the 50 days SMA (green line). If the price moves above this trendline, then it could be the first sign that this bounce might be different. And if the price moving back above the IPO closing price of 93.89 that is also in confluent with the May 4, 2015 pivot close of 93.88 (one cent below the IPO close), then it will have made a higher high in a larger time frame. This higher high could lead to a new uptrend, and also confirming this bounce is indeed different from the previous bounce.
Daily:
From this analysis, the key levels to watch for a possible trend reversal is 87 and the IPO close of 93.89. If the price moved back above the IPO close, it could start a new uptrend and the price could be headed up to fill the 1/28/15 price gap. If the price fails to move above 87, then this could be just another oversold bounce.
