Alibaba Stock Breaks Resistance – Bigger Breakout Ahead?

Alibaba stock (ticker: BABA) has spent years in the doghouse, but its fortune cookie might finally have a new message. The Chinese tech stock just broke above key resistance at $120 after trying (and failing) twice before. That’s a big deal. With earnings around the corner and macro factors at play, is this the start of a bigger BABA breakout?

What does Alibaba actually do?

Think of Alibaba as China’s version of Amazon, but bigger in some ways.

• E-commerce: it operates platforms like Taobao and Tmall, which dominate Chinese online shopping.
• Cloud computing: Alibaba Cloud is China’s biggest cloud service provider (like AWS in the West).
• Fintech & payments: the company owns a stake in Ant Group (Alipay), China’s leading digital payments system.
• Logistics & AI: Alibaba runs Cainiao (smart logistics) and is expanding into AI-powered search and cloud infrastructure.

Despite its dominance, China’s regulatory crackdown in 2021-22 hit Alibaba hard, tanking the stock. But with government policies easing, investors are starting to take another look.

Alibaba stock (BABA) technical analysis

BABA peaked at $319.32 in October 2020 before crashing to $58.01 in October 2022 – a brutal 82% drop. Since then, it’s spent two years chopping around in a bottoming pattern, trying twice to break horizontal resistance near $120.

Last week, Alibaba finally closed above that level at $124.73. Technically, a close above resistance is generally bullish, and could signal more upside ahead for the stock. But breakouts don’t always go straight up, and a pullback to retest $120 wouldn’t be surprising. In my books, the stock generally looks “good” so long as it’s above $100 per share. That’s a nice round number – any further below that could signal a fake out.

Not sure how support and resistance works? Here’s a quick PDF guide:

If you’re a Wyckoff fan, BABA kind of looks like its just completed Wyckoff accumulation pattern. That means big investors may have been buying or accumulating the stock, and are now ready for the “markup phase”. 

Earnings could make or break this move

Alibaba reports Q4 2024 earnings on Feb 20, and this could be the big test.

• Analysts expectations: earnings per share (EPS) of 2.46 CNY and revenue of 278.93B CNY.
• Last year: Alibaba reported EPS of 5.65 CNY and net income grew 69% year-on-year.

EPS (earnings per share) tells you how much profit Alibaba made per share of stock. It’s a key number that investors watch – if Alibaba beats expectations, that could spark more investor attention.

Alibaba looks cheap vs US stocks

Alibaba is trading at a massive discount to other big tech stocks. 

• Forward P/E: 12.92 vs Nasdaq’s 26.04
• Trailing P/E: 25.90 vs Nasdaq’s 41.92

P/E (price-to-earnings ratio) tells you how much investors are paying relative to earnings. The lower the number, the cheaper the stock looks compared to its profits. Alibaba’s forward P/E (which uses future earnings estimates) is less than half of the Nasdaq average.

For investors looking for “value” in big tech stocks, Alibaba is one of the cheapest around.

Big-name investors are buying Alibaba stock (BABA)

David Tepper’s hedge fund, Appaloosa Management, has been betting big on Chinese stocks. Tepper sees China’s market as undervalued, offering better potential rewards compared to other global markets. He also fancies the growth prospects in China’s tech sector. Tepper’s fund just increased its Alibaba stake by 18% to make BABA its largest position (~$1.0B). That’s a serious vote of confidence. 

Image source: @LeverageShares. (X)Twitter.

Wrapping up

Alibaba finally broke resistance at $120 and looks like it has bottomed. Big investors are buying, China stocks are recovering, and earnings are around the corner. But breakouts don’t always go straight up.

If earnings deliver on Thursday, this move could have legs. Pull backs could be opportunities in my opinion – but things could look a bit shaky if BABA dips back below $100.

Key takeaways

• Alibaba broke resistance at $120 after years of struggle – earnings this week could confirm the breakout.
• Big-name investors, including David Tepper, are buying in, betting on a China tech rebound.
• Alibaba trades at less than half the Nasdaq’s forward P/E valuation. That makes BABA one of the cheapest big tech stocks around.

As usual, none of this is investment advice. If you liked this piece, check out my free newsletter for how-to guides and investment insights across crypto, stocks, metals, and more.