Alibaba back below 300 after postponed Ant IPO – will Earnings help push it back up?

November 05, 2020 11:30

Right before the US Presidential Election 2020, from Tuesday to Wednesday, stock traders with a focus on tech stocks not just in the US but also in China, looked at their charts stunned: potentially one of the biggest IPO's ever, from Ant Group, was postponed.

Since Alibaba (#BABA) is said to have a roughly 33% stake in the IPO, stocks of the Chinese internet retail giant dropped sharply on Tuesday, having difficulty recovering – what happened and what does this mean for #BABA?

Ant Group IPO postponed due to regulatory issues – Alibaba suffers, but remains bullish

The main reason for the suspension of the IPO can be found in changes in the regulatory environment. Shanghai exchange officials stated their concerns that the company likely would not fulfill the conditions in this "new" regulatory environment.

As it seems, this is a perfect example of why investments, including trades in Chinese companies, should only be taken after careful consideration: Chinese government interventions, in this case a delay of an IPO, are always on the table, resulting in elevated volatility in stocks closely correlated with the company – like Alibaba.

Certainly, traders will now be wondering how such a new regulatory environment comes into existence, postponing a potential "blockbuster IPO" like the one from Ant Group, a company that was likely about to raise $34.5 billion with its IPO, valuing it at over $313 billion and making it, in fact, the biggest IPO of all time.

The reason can likely be found in the bold remarks from the co-founder of Alibaba, who also backs the Ant Group spin off, Jack Ma.

Ma is known for bringing financial services to small businesses and Chinese citizens in general and recently criticized China's state-dominated banking system, causing difficulties for small Chinese businesses. Thanks to Ant's smartphone-based system, a suite of financial products, including the widely used Alipay digital wallet, allow:

  • Making payments
  • Borrowing money
  • Investing

All of this, obviously, undermines the Chinese authority.

While it could be that Ant Group only needs to make sure it meets the terms of the new regulations (which could be an easy fix), starting such a huge IPO having already burned their relationship with Chinese regulators could be a longer-term problem.

But the overall outlook for #BABA remains bullish and the recent drop could be an interesting spot for mid-term long-engagements.

How can you trade #BABA in this environment?

Looking at the daily time-frame, #BABA finds itself in a clear sequence of higher highs and lows and is solidly above its SMA(200). The sequence remains intact as long as #BABA trades above 265.00.

The recent bounce from its All Time High is a nearly 50% correction from its July lows up to its October highs and, technically, we consider the region around 280.00 USD a potential long-trigger against which #BABA could see another run back to above 300.00. However, the bullish picture could be negated once the stock drops below 265.00 USD.

Traders should keep in mind the earnings release on the 05th of November with #BABA expected to report an EPS of 14.18 USD and revenue at 155.88 bln USD. A surprise on the upside could result in a quick bounce back above 300 USD. If numbers disappoint, the stock could become vulnerable to a drop to below 265.00 USD.

Source: Admiral Markets MT5 with MT5SE Add-on #BABA CFD Daily chart (from April 18, 2019, to November 04, 2020). Accessed: November 04, 2020, at 10:00 PM GMT. Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2016, the value of #BABA increased by 8.05%, in 2017, it increased by 96.37%, in 2018, it fell by 20.51%, and in 2019, it increased by 54.74%, meaning that since its IPO in 2014, it is up by 334.87%.

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