Lets talk about $Alibaba(BABA)$
First brief overview of fundamentals:
Revenue Growth: $135.4 billion in FY 2023, up 2% YoY.
Profitability: Net income of $10.2 billion, significant improvement from $7.4 billion in FY 2022.
Cash Flow: Strong operating cash flow ($23.4 billion) and free cash flow ($15.8 billion).
Financial Health: Cash and equivalents of $67.8 billion; strong balance sheet with total assets of $270 billion and liabilities of $92 billion.
Market Position: Dominant in Chinese e-commerce and leading cloud provider with Alibaba Cloud.
Valuation:
Market cap of $220 billion
P/E ratio around 21
P/S ratio of 1.6
P/B ratio of 1.24, indicating potential undervaluation.
Competitive Advantage: Vast ecosystem, large user base, and technological strength.
Main risk: CCP
Fundamentals are still strong, and stock is undervalued.
The main risk is regulations and price can remain depressed despite undervaluation.
So lets look at the chart technicals:
Weekly:
Huge down trend since 2021
Daily:
Some structure with low 70s being defended.
We know afterward this is due to Alibaba buying back its shares along with its founders, Jack Ma and Joe Tsai. Recently, the company expanded its share buyback program, authorizing an additional $25 billion in February 2024. This brings the total buyback authorization to $31.9 billion, effective through March 2027.
Great fundamentals and we have huge buyers defending the downside. From current prices, with a target of $120, that's a 1:4 risk reward trade.
To better time the entry, I use the Wyckoff Spring method (https://www.newtraderu.com/2022/03/09/wyckoff-spring/) and buy on the pullback after a range breakout
https://www.tradingview.com/x/Tx8aFi0U/
Lastly sentiments:
China sentiments are at the all time low. Everyone I know have tried to capture the bottom and have given up. Chinese economy isnt doing so well and the people are not bullish. Instead, China retailers have been pushing gold prices up.
That said, a huge weekly down trend of 3 years will take time to turn and a significant trend doesn't just turn overnight. Along with that, there are many bag holders who will sell at every rally.
As such, this is a potentially psychologically difficult trade. As such, I am being conservative on the size of this trade and will be taking partial profit at $90, $100 and $120.
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