Alibaba Group Holding Ltd. (NYSE: BABA) faces a challenging period as it cancels the spinoff of its cloud business due to U.S. export restrictions on AI chips, triggering a 9.14% slump in its Hong Kong shares on Thursday and a $20 billion drop in market value. Despite beating Q2 earnings estimates with a 9% revenue increase to $30.8 billion, the cancellation decision, coinciding with Jack Ma’s family trust selling $871 million in shares, stirred uncertainties.
Operationally, Alibaba saw a 34% increase in operating income and improved free cash flow. However, challenges in the cloud business and slower e-commerce growth, coupled with internal conflicts and cultural issues, raise concerns. The recent stock decline makes it more affordable, but doubts persist about Alibaba’s turnaround strategy amid internal discord.
Technical Analysis
Alibaba’s price action sits within a descending channel pattern, trending below key SMAs [50-SMA (blue line), 100-SMA (orange line), 200-SMA (red line)]. The 50-SMA recently broke below the 100-SMA and 200-SMA, signifying bearish momentum. RSI indicates a downward trend, currently at 36.14, suggesting a bearish sentiment on high volume.
Therefore, short-term trading opportunities towards the $74.45 could arise should the bears intensify their short-term dominance. A break below the initial support would likely bring the $69.73 support level within the bears’ reach in the short term.
Conversely, Short-term trading opportunities could exist towards the resistance level at $82.93 (23.60% Fibonacci retracement level) should the bulls sustain a push higher. A break above the initial resistance would likely bring the $87.72 and $92.76 (61.80% Fibonacci retracement level) resistance levels into play.
Summary
The cancellation of the cloud business spinoff, coupled with Jack Ma’s stock sale, has intensified uncertainty and internal conflicts within Alibaba, potentially impacting future performance. The company faces challenges in balancing shareholders’ interests amidst internal disputes, posing risks to its long-term prospects.
Alibaba’s cancellation of the cloud business spinoff intensified bearish sentiment, reflected in a decline to $77.60. With the price below key SMAs and the RSI indicating intense selling pressure, short-term bearish movements are anticipated. However, a bullish push might encounter resistance levels at $82.93 and higher. The critical support at $74.45 remains a pivotal point, and a breach could intensify the bearish trend towards $69.73.
Sources: TradingView, Alibaba, Zacks, Reuters, MT Newswire, Benzinga, BusinessLive.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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