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Buy Alibaba Stock on Coronavirus Fears

Tyler Craig

Coronavirus fears are taking a toll on Chinese stocks this week. But there’s a silver lining to the carnage. Most of them, like Alibaba (NYSE:BABA) stock, had share prices that were hotter than a freshly fired pistol. They needed a pullback, and the virus news, as terrible as it is, provided the catalyst needed for Chinese equities to cool off.

Should Investors Buy Alibaba Stock For The New Year and the Longer Term?

Source: zhu difeng / Shutterstock.com

Now leaders in the space offer attractive buy-the-dip setups. Spectators reticent to chase last week’s lofty prices have the chance to pile in at lower-risk levels.

We’ll break down the opportunity in Alibaba stock below, but first, let’s look at the price action in the iShares China Large-Cap ETF (NYSEARCA:FXI) to provide the backdrop for our trade idea.

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China’s Stock Woes

Source: The thinkorswim® platform from TD Ameritrade

FXI is the most liquid exchange-traded fund available for diversified exposure to China’s stock market. As such, it is the go-to vehicle for traders and investors seeking access to the largest companies in the country. The spreading coronavirus crisis has taken FXI down 6.5% from last week’s $45.29 high. It’s far from a major correction, but enough to reintroduce fear into a marketplace that has been extremely complacent.

Though the descent has pushed FXI below its 20-day moving average, the 50-day is holding firm this morning. We are testing the lower boundary of its trending range in what could turn out to be a buying opportunity. Because the damage to FXI has been insufficient to turn the intermediate-term uptrend, I suggest maintaining a bullish view on China and the entire emerging markets space for that matter.

Alibaba stock is retreating alongside FXI and offers a compelling low-risk setup as well. Let’s take a closer look.

Alibaba Stock Charts

Source: The thinkorswim® platform from TD Ameritrade

Late last year, BABA finally mustered the strength to break out out of its two-year trading range. The phase-one trade deal, and improving sentiment surrounding emerging markets, boosted the stock to a new record. Momentum increased during the ascent, breathing new life into what had become a flagging trend. Volume patterns also confirmed institutions were wading back into the waters with multiple signs of accumulation.

Because of the groundswell in demand, I suspect any weakness over the coming days will prove a buying opportunity. There are too many potential floors beneath the price to bet against bulls here. I’m eyeing the next two support zones at $207 and $200.

The daily view reveals Thursday’s push below the 20-day moving average was quickly bought up. Rather than selling the down open, buyers swarmed, sending Alibaba stock toward its high of the day by closing time.

Source: The thinkorswim® platform from TD Ameritrade

The next quarterly report on Feb. 12 could inject volatility into what has otherwise been a well-behaved uptrend. That’s the one X-factor that could upset what is now a clear buy-the-dip setup.

If you’re willing to lean long into the announcement, then deploy bull put spreads.

The Trade: Sell the Feb $210/$205 bull put spread for around $1.30.

As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!

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