Distribution Trade Planning for Alibaba BABA

May 25, 2016: 1:10 PM CST

Is Alibaba (BABA) setting up another Distribution Arc or Sell-Swing Breakdown Pattern?

Let’s view the prior example and plan our strategy for the current similar pattern.

At the end of 2015, Alibaba (BABA) shares formed a distribution triangle (with negative volume and momentum divergences) into the $86.00 per share level.

A gap-down OUT of the triangle set in motion a strong sell-swing (liquidation) “away from” the $86.00 level toward the prior low near $60.00 per share.

With the market, a strong positive divergence boosted shares higher – but also like the market – not quite to the prior high at the $86.00 level.

Finally, like the market, shares are forming a small Head and Shoulders Pattern or Distribution Arc on similar negative divergences.

What’s the expectation and trading plan?

By the way, if you’re not trading Alibaba (BABA), this same logic will work for other swing-trading candidates.

IF price continues to break down toward $74.00 and under the $74.00 pivot (the 200 day SMA again), THEN we’ll expect price to complete a similar liquidation/sell-swing “away from”$74.00 toward the $60.00 pivot or lower.

If so, set up a campaign of short-selling similar to what we saw in January and February 2016.

IF however “this time is different,” an alternate thesis bullish “short-squeeze” breakout play will develop above $82.00 per share.

Otherwise, we’re neutral/cautious as price continues to bounce between the highlighted trading range.

There’s not really much opportunity for swing traders within a range, but we’d look to play breakouts from ranges.

Again, whether or not you want to trade this stock, it should be fun to watch what happens next!

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Corey Rosenbloom, CMT

Afraid to Trade.com

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1 Comment

One Response to “Distribution Trade Planning for Alibaba BABA”

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