Two years ago, on September 18th, 2023, we wrote that while it didn’t feel like it, Alibaba was actually in an uptrend. At just above $86 a share, the stock was down 73% from its 2020 record high and had been dead money for almost a decade. So our proclamation that it was actually in an uptrend was understandably met with nothing but confusion.
The bullish logic was that the company remained the leading e-commerce platform in China with profitably growing revenue, a huge net cash position and cheap valuation. Unfortunately for the bulls, this made sense at $86 just as much as it did at $200. What made us think that the bottom was finally in was the Elliott Wave chart below.
Alibaba’s 4-hour chart revealed that the recovery from $58 to $121 was a five-wave impulse pattern, marked 1-2-3-4-5 in wave (1/A). The five sub-waves of wave 3 were also visible. According to the theory, impulses point in the direction of the larger trend. An impulse pattern to the upside therefore meant that the selloff was over.
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The structure of the following decline gave us another reason for optimism. It looked like an A-B-C zigzag correction in wave (2/B), with an a-b-c-d-e triangle in wave B. Triangles precede the final wave of the sequence, so we thought that a bullish reversal can be expected around $70. This was the count to rely on as long as $58 was intact. Two years later now, the updated chart below shows how the situation developed.
Wave C of (2/B) subdivided into another impulsive structure to drag Alibaba stock below $67 in January, 2024. The invalidation level at $58 survived, however, and the uptrend finally resumed. Yesterday saw another 10% surge after the company announced plans to spend more than $50B to build its AI infrastructure.
While it has yet to be seen whether Big Tech is going to regret its massive AI spending spree, Alibaba’s core e-commerce business is picking up both domestically and internationally. The surge from $67 involved several promising rises, followed by equally disappointing declines. It is best seen as a sequence of first and second waves within wave (3/C), where wave 1 was an expanding leading diagonal. If this count is correct, the bulls are far from done with the stock. Given Alibaba’s leading market position, improving fundamentals and still reasonable valuation, we plan to stay and see how far they can go.
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