One of the fastest growing large cap companies

Alibaba Group Holding is the largest and most successful e-commerce giants in China. Alibaba is often referred to as the Amazon of China due to the fact that over the last few years, the company has evolved from being a traditional e-commerce company to a conglomerate that has businesses ranging from logistics and food delivery to cloud computing.

Alibaba Group’s operations spread across three different business models, which significantly helps the company to dominate the entire Chinese ecommerce world – Alibaba.com, Taobao, and Tmall. This is one of the things that makes Alibaba unique as it covers the entire ecommerce spectrum ranging from consumer-to-consumer (C2C), business-to-consumer (B2C), and business-to-business (B2B) sales services via its web portals, as well as electronic payment services, shopping search engines and cloud computing services. Alibaba.com is the flagman of the company’s operations and it focuses exclusively on providing a direct B2B service. Taobao Marketplace facilitates consumer-to-consumer (C2C) retail by providing a platform for small businesses and individual entrepreneurs to open online stores that mainly cater to consumers in Chinese-speaking regions (Mainland China, Hong Kong, Macau and Taiwan) and abroad, which is made payable by online cellphone accounts. Its stores usually offer an express delivery-service to their clientele. Tmall on the other hand is a platform for local Chinese and international businesses to sell brand name goods to consumers in mainland China, Hong Kong, Macau and Taiwan. This puts Tmall in the B2C online retail category, which also closes the whole ecommerce circle for the company. It is important to note that businesses account for more than half of all online retail sales in China, which is one of the world’s fastest-growing e-commerce markets. Taobao is one of Alibaba Group’s most profitable marketplaces that generates for more than 80% of its sales, thanks to soaring demand for high-quality imported brands in China.

The senior management of the company has done a remarkable job in exploring the opportunity that this new environment has presented for the business. Despite the global pandemic, the company has experienced strong growth this year. Revenue grew 34% year over year in the fiscal first quarter ended June 30, up from the prior quarter’s 22% revenue growth. The COVID-19 pandemic has also resulted in an increase in user adoption of digital channels created opportunities for Alibaba. Due to the pandemic’s global supply chain disruption, international wholesalers turned to Alibaba.com to buy products, resulting in a year-over-year increase of more than 100% in daily active buyers in June.

Being one of the global leaders in E-commerce isn’t Alibaba’s only success story. Just like its US counterpart and major competitor, Amazon, Alibaba operates a cloud services business, which in turn saw Q1 revenue jumping 59% year over year. Furthermore, the top line for the Q2 by this segment was RMB14.9 billion (US$2.19 billion), up 60% from the year-ago quarter, driven by growth in revenues from customers in Internet, finance and retail industries. Seeing these impressive growth numbers for Alibaba’s 2nd most influential business segment is more easily justifiable as it is in a much earlier stage of development, thus it has more room to growth. Additionally, the cloud computing space is booming all around the world at the moment, thus for Alibaba to participate in this boom with the largest cloud service platform in China is a great advantage. However, what’s even more important is that the company’s leading business segment – Core Retail – has continued to grow with a remarkable rate of 25%+ across its various different categories. For example, China commerce retail business (accounting for 62% of total revenues) were RMB95.5 billion (US$14.1 billion), reflecting an increase of 26% year over year. Furthermore,the international commerce retail business (5% of total revenues) — Revenues for the quarter were RMB7.8 billion (US$1.1 billion), increasing 30% year over year.

The increase was driven by revenue growth from Lazada and Trendyol, partially offset by decrease in revenues from AliExpress. The international commerce wholesale business (2% of total revenues generated revenues of RMB3.5 billion (US$517 million), which increased 44% from the prior-year quarter etc.

Alibaba’s online sales continued to grow in the second quarter of fiscal 2021, backed by the shift in consumers shopping patterns amid the pandemic. In fact, the Mobile MAUs were 881 million, improving 12.2% from the prior-year quarter and 0.8% sequentially. Additionally, China’s retail marketplaces had 757 million annual active buyers, reflecting 9.2% year-over-year growth and 2% sequential improvement.

In fact, Alibaba possesses a number of unique strengths. These strengths give Alibaba plenty of room to grow even after an excellent financial performance this year amid the COVID-19 pandemic. Let’s look at why Alibaba is poised to become even bigger.

The current framework

As we all know 2020 proved to be one of the most challenging years in a long time for many individuals and businesses due to the COVID-19 related lock-downs and economic shut-downs, which quite honestly put the global economy on the ropes. The remarkable efforts of central bankers and politicians around the world for ensuring that the flow of liquidity in the market doesn’t stop and that people have everything they need to survive this difficult period, have also proven to be of essential importance for keeping the ball rolling. Multiple different and unprecedented monetary and fiscal measures have been taken in order to stimulate consumer spending, productivity and small-business operations as these are the most influential factors for the overall economic well-being of every nation. With shelter-in-place and social distancing orders going into effect many businesses had to find a way of changing their core business models in order to stay relevant and functional. Others on the other hand, like Alibaba, used all of that as a great tailwind for their business operations in 2020. While the brick-and-mortar sector experienced major store shut-downs, as people were not willing to risk their health by buying things physically from the store anymore, online sales on the other hand are seeing tremendous growth. We believe that the current meaningful shift towards online shopping is definitely here to stay as a concept. Even after COVID-19 goes away following the current worldwide vaccination process, people will never go back entirely to how things were structured before the pandemic. COVID-19 will stay in history not only as the fastest spreading pandemic, but also with the world-changing effect that it had on the way people communicate, talk, eat, touch etc.

Following the harsh comments made by Alibaba’s CEO, Jack Ma at the end of last year and the subsequent issues that he faced in his home country, investors became increasingly worried for Alibaba’s market position and were afraid of a more serious governmental intervention. This resulted in the stock tanking hard in the November-December period, thus erasing more than 60% of the remarkable previously accumulated gain. This loss in the stock’s price also coincided perfectly with the loss of stature for Mr. Ma as he was facing increasing trouble with the Chinese government. Chinese officials said they had opened an antitrust investigation into Alibaba, the powerhouse e-commerce company that he co-founded and over which he still holds considerable sway. However, our analysis shows that these are nothing else but short-term negative drives as Alibaba will continue to be the largest and most prominent Chinese company for the years to come. Furthermore, we see the company maintaining its remarkable growth numbers on both the revenue and earnings fronts, due to its strong and dominating market position. The stock is insanely cheap from a purely valuation standpoint, when compared with some of its major US-based competitors like Amazon, Ebay etc. Thus, the current correction should not be taken as a meaningful trend reversal, but rather as a great buying opportunity for those who have the patience to wait.

The stock

Prior to Jack Ma’s problems with the government, Alibaba’s stock held up relatively well throughout the first 10 months in 2020, gaining around 87.6% in the March – October period. However, 2020 proved to be everything else but normal, as we saw tremendous volatility expansions both to the downside and to the upside throughout the year. Some of the hardest hit sectors saw leading companies with tremendous track records, business models and general historical success like Boeing, General Electric, Walt Disney, Starbucks, Ford, Delta Airlines etc. lose anywhere between 50-70% of their market capitalization. In the meantime Alibaba, initially showed a certain level of resilience and stability which definitely attracted a lot of investors attention. While the company was not immune to COVID-19, it had 2 impressive and financially strong Q1 and Q2 quarters. Alibaba Group Holding Limited reported second-quarter fiscal 2021 earnings of $2.65 per ADS, which surpassed the consensus estimate of $2.06. Furthermore, the bottom line increased 37% year over year in Q2. However, the company missed the Q3 Earnings expectations by delivering $1.32 vs. $1.65 expected. This also weighed on the stock’s performance in the November-December period. Many investors saw the recent stock price declines in BABA as an attractive opportunity to buy into the stock because of the remarkable combination of a strong fundamental positioning with a generally positive technical picture.

As a result, the bulls took control over the stock back in January, 2021 around the $220 support level and pushed the price sharply higher. The better-than-expected Q4 earnings report announced on February 2nd, 2021 also brought back investors confidence into the stock.

We should also always remember that the scale on which Alibaba operates is impressive as it has 960 million active customers. Just to put that number in perspective, that’s roughly three times the entire population of the U.S. While Alibaba is often compared to Amazon (AMZN) because of the relatively close business models that the two companies share, we must acknowledge the fact that their growth numbers certainly aren’t similar. Amazon’s trailing 12-month revenue growth has been 209% in the past five years. Alibaba has more than double that growth rate at 460%. Yet AMZN stock is up 540% in that stretch compared to just a 350% gain for BABA stock. Let that sink in.

Last year’s risks in retrospect

One of the major risks for the stock last year was associated with the trade tensions between US and China as a lot of investors were worried that if any major trade restrictions are imposed on China then this might seriously hurt Alibaba’s business. However, tensions were relieved at the end of 2019, with the signing of the phase one trade deal between the Washington and Beijing. It was no surprise that Alibaba’s initial all-time highs in January, 2020 coincided almost perfectly with that event. It is important to note that even though the trade deal was signed, the political tensions never went away, as the US president at the time, Donald Trump was leading a very aggressive and no-compromise policy against China.

As we all know, the business world is a constant roller-coaster and in many instances right when you think that you are out of the woods and its all sunshine and rainbows ahead, something drastically changes and you find yourself in another difficult predicament. This definitely sounds familiar to Alibaba’s shareholders as right when it seemed that the trade tensions that persisted for almost a year were resolved, the coronavirus hit the global economy and then the US government and more specifically President Trump began an all out accusation campaign against China, blaming them for intentionally spreading COVID-19 around the world. The debate on this issue got very heated and it led to the Senate passing the Holding Foreign Companies Accountable Act (HFCAA). The bill would require Alibaba and all other U.S.-listed Chinese stocks to verify they are not controlled by the Chinese government. Alibaba would also have to submit its financials to Public Company Accounting Oversight Board’s (PCAOB) audits for three consecutive years. As a result, there was an active discussion in the media regarding a potential forceful delisting of all Chinese stocks from the US equity market earlier in the year. This put a lot of selling pressure on the stock back in the spring as we saw it dropping with almost 12% in a matter of 5-7 trading days.

Good News!

However, with President Joe Biden, in the White House, Alibaba sees a much brighter future ahead as Biden has vouched many times throughout his campaign for much more relaxed, friendly and business oriented policies when it comes to global trade.

Furthermore, with the new president the risks of a potential delisting of some of the major Chinese stocks from the US exchanges has now been taken down to basically zero. We would like to point out few very important facts as to why we believe that the likelihood of Alibaba and some of its Chinese counterparts being delisted from the US exchanges was never actually on the table. First of all, losing Alibaba and other Chinese stocks would cost Wall Street stock exchanges, brokers and investment banks millions of dollars. They would lose trading fees, underwriting fees and other income.

“Wall Street will be lobbying to try to block it, because it makes a lot of money off of listings of Chinese companies in the United States,” Harvard Law School professor Jesse Fried said.

Fried said the House may not even bring the bill up for a vote. Voting against it would make representatives look weak on China. But voting for it would anger their deep-pocketed Wall Street donors. I think people may be underestimating how much of an impact the investment community has on U.S. politics. When it becomes clear to investors that BABA stock isn’t going anywhere, it could trigger a relief rally.

Chinese regulators… To be continued

The latest risk factor that has seriously affected the stock price was the fact that Chinese regulators derailed the public debut of its fintech affiliate Ant Group. Alibaba holds a 33% stake in Ant, which owns the digital payments platform Alipay. Ant’s stock listing in Shanghai and Hong Kong was suspended after Jack Ma, Alibaba’s co-founder and one of Ant’s top investors with an 8.8% stake, delivered a controversial speech at a government forum on Oct. 24 in which he openly criticized the Chinese financial regulators. With a valuation of over $300 billion Ant Group Financial was expected to be the world’s largest IPO. Besides that, this IPO was expected to be a truly defining moment for China’s exchanges as Ant was exclusively listing the stock in China instead of the U.S. The fact that the IPO was stopped by the regulators cost its underwriters millions of dollars in fees, and a new IPO could take months to file.

However, even though that this was by far not the best outcome of Ant’s highly anticipated IPO and will definitely affect the stock negatively in the short term, we believe that it will not have any long-lasting impact on the phenomenal growth prospects for the company. The market overreacted to the news and unjustly punished the stock with a near 20% drop in the span of few trading sessions. Alibaba still remains one of the cheapest stocks on an earnings bases with respect with the outstanding growth that it brings to the table.

Company specifics

Being a Chinese company is not easy, as due to the political regime over there the state has a saying in almost everything that you do. For example, many investors are not aware that Alibaba’s business model is heavily influenced by the strict laws in China. Chinese laws forbid for foreigner to own stocks in any Chinese Internet company, which implicates that a foreign investor cannot be a real stockholder in Alibaba. In reality, all international investors who buy Alibaba shares on the NYSE actually purchase stocks of the holding company called Alibaba Group Holding Ltd registered in the Cayman Islands and not that of the actual Alibaba. Therefore, they have no voting rights in the company or against any of its assets, including Taobao and Tmall. The investors will only receive a share in Alibaba’s profits, with no ownership rights.

Alibaba has been very active on the acquisition front in recent years, by completing a series of acquisitions in an attempt to support and further strengthen its key capabilities and to also enable the Company to expand both in China and internationally. Acquisitions are a great way for a cash rich company to expand its footprint in the industry that it operates in or to even enter into a completely different one. However, statistics show that over 75% of the major acquisitions done on a global scale fail to meet the initial expectations that the company had prior to the acquisition. The most common issues are integration risks, management coordination, delegation, added costs, debt etc.

Last but not least of course, we should not forget that there is a very strong competition in the online retail space both locally and internationally. Alibaba’s toughest Chinese competitor is by far, Tencent Holdings. With Alibaba’s continued efforts to dominate not only the Chinese but also the global online retail space, the company is finding itself in a very challenging fight with the likes of the two US e-commerce giants, eBay and Amazon, which on the other hand have seen nothing but remarkable growth in the last decade. Both of the US e-commerce leaders have remarkable leadership, management and it will be very tough for the Chinese giant to beat them on their home turf. Additionally, eBay’s mobile payment system, PayPal, is very popular among U.S. consumers. Paypal is the world’s largest “bank” with over 300 million accounts. Consumers using Paypal are more likely to continue to use the US platforms as they are integrated very well with this payment processor, and there is no need for any further set up to be done.

On the other hand certain global trends are providing serious tailwinds for Alibaba’s future growth. The company serves about 80% of the Chinese e-Commerce market where population density is very high. E-Commerce Index reveals which developing markets hold the most potential for online growth, and China is now leading the race in terms of maximizing the potential of the Internet compared with the West. The low-cost, widely available telecommunication infrastructure in China has increased the popularity of online shopping. Additionally, these developing economies are undergoing a major urbanization process at the moment and are seeing a substantial improvement of the standard of living for people who are moving from the rural areas of the country to the highly densed and economically prosperous cities. The rising standard of living is directly correlated with higher levels of disposable income, which in turn is directly translated into higher online and offline retail turnover volumes as people are trying to improve their lifestyles drastically. Alibaba’s Tmall platform is well positioned to capture the rising demand for high-quality products and services. It accepts only verified stores and sells only genuine products, helping build consumers’ trust and in turn increase conversion rates. Alibaba aims to achieve US$1 trillion in Gross Merchandise Value by fiscal year 2020.

Alibaba has continued to witness a major increase in its monetization rates. This refers to the amount that Alibaba earns from the sale of goods on its platforms. Few years ago, the company was able to identify that the only guaranteed way to increase its monetization rates was to focus on foreign brands and other high-quality merchants on its platforms. By doing so the company has seen a steady increase the online marketing inventory on both mobile and the PC, which in turn has improved the monetization rate greatly.

The company is well positioned in the New Retail space. In this space, it aims to bring together digital payments, e-commerce, food delivery and other parts of the business into one big ecosystem. The ubiquity of smartphones and evolution of physical and online commerce are helping the company to gain momentum in this space. It expects that the system will offer brick-and-mortar retailers new ways to evolve across marketing, inventory and distribution networks. These look promising and will not only reshape the retail landscape but also help Alibaba fend off competition.

Launched in 2009, the cloud business is now one of the biggest in China. The cloud computing has gradually become one of the fastest-growing businesses and the second-largest revenue source for Alibaba. The company has also become a renowned name in the growing entertainment and media market, driven by increasing demand for videos across its platform and growing partnerships.

Technical Analysis

By looking at the daily chart, we can see the strong bullish rally that occurred in the March-October period last year taking the price from the March 23rd lows of 2020 around $170 to the $320 all-time highs at the end of October, 2020. This represented an astonishing 88% gain for the stock in less than a year. However, the road to the all-time highs was filled with many different hurdles as the bulls had to overcome quite a lot of obstacles in order to keep pushing the price higher. There were 5 10%-15% corrective movements that took place during this strong uptrend, but the uptrend remained intact on all occasions. As we already discussed above, a powerful combination of Jack Ma’s issues with the Chinese government, the Q3 Earnings miss and also the strong profit taking interest in the market were the main reasons why the uptrend was broken last November.

However, despite the temporary weakness for the company the stock has continued to attract a lot of investors’ attention as it remains the one of fastest growing large cap stocks in the world. The strong dominance in the growing and rapidly expanding Chinese e-commerce market is also a great long-term growth driver. Alibaba has spent a lot of efforts and resources in recent years on evolving from a simple online retailer into a huge multi-billion dollar conglomerate with various different business under the Alibaba umbrella.

The stock is currently sitting at $230 per share, which is 28.1% below its all-time highs of $320 per share. It seems that the stock has once again found strong support around the 220-230 levels, after the massive more than 30% decline that the stock staged at the end of last year. The most recent failure of the price to break below the $220 mark could be taken as a signal for a fading bearish momentum signaling for a potential bullish reversal ahead and a general resumption of the long-term uptrend. A more meaningful correction for the stock was anticipated by us as we clearly pointed to the heavily overextended nature of the uptrend in our last analysis of the stock back in the Fall of 2020.

However, we believe that the new $1.9 trillion stimulus package accepted in the US, will inject a lot of liquidity into the market, which will be a great short-term positive for the equity market. We expect most of the big tech names as well as other favorites to restore their favorable image among traders and investors in the coming weeks, thus we anticipate that BABA will be among the best performing stocks in the next 4-6 weeks. While we believe that the stock market in the US is currently holding a lot of intrinsic risks – COVID-19, the newly formed office in DC, the economic recovery, the post-Brexit economic reality for the UK and EU etc. – and that we could be in for a sideways and choppy price action in the coming months. However, we see that the winners would most likely continue to win. We are strongly bullish on BABA in both the short and long term and believe that the most recent price corrections must be treated as a great opportunity to buy this strong performing stock at a remarkable discount, which would in turn give us a chance to maximize our profits to the upside.

Moreover, some of the technical indicators that we are monitoring closely on a daily basis (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) have already retraced from their overbought conditions and are signaling that the uptrend might be returning pretty soon. In addition to that, it is important to note the fact that the Vanguard FTSE Emerging Markets ETF would continue to attract a lot of the investors’ attention moving forward, as technology and communication is everything nowadays and the companies in the VWO ETF are heavily focused on shaping up our future through innovation. This makes us optimistic for the future performance of BABA as a meaningful part of the ETFs structure. Our analysis shows that as a result of the strong, consistent and continuously improving financial performance of the company and the phenomenal fundamental positioning of BABA, the stock will be able to hold its ground better than some of the other stocks out there in the event of an even deeper correction, and it would also significantly outperform the broader market once the uptrend resumes.

Acknowledging the fact that we are in a position to buy at an over 25% discount from the all-time high levels, we would like to point out that buying at these levels would be suitable for both risk-oriented investors as well as risk-averse traders. Thus, we are advising all of our followers to look at the 225-235 range for a potential long entry on the stock

Dow Theory 2.0 – Correlation Confirmation

Dow Experts’ approach has always been based on identifying the next great movement in the market by analyzing both the fundamentals, the technicals and all-important factors that have an impact on the price. Furthermore, our cross-correlation analysis allows us to act in the market only if the movement on the chart is confirmed by the other key ETFs and indices that we use in our investing philosophy.

As you know, the Dow Theory 2.0 includes more than 30 correlations between different ETFs and stock market indices, which give us a chance to confirm whether a certain movement in the market is worth taking action for.

Therefore, in order to determine whether Alibaba is a good stock to buy with respect to the current levels of the price, we have decided to analyze the performance of both the VWO (Vanguard FTSE Emerging Markets ETF) and the SPY (SPDR S&P 500 ETF Trust). The two ETFs share a very strong and positive 74% 10-year correlation, which would allow us to confirm some of the signals that we are getting with a great deal of certainty.

Vanguard FTSE Emerging Markets ETF

VWO is one of the biggest ETFs out there that invests in the stock where with 18.12M shares Alibaba accounts for 6.84% of the fund and plays an important role for the ETFs’ overall performance.

VWO tracks a market-cap-weighted index of emerging-market stocks, excluding South Korea

VWO is one of the earlier ETFs to launch in this space. In 2013 it switched to a FTSE index which does not count South Korea as an emerging market, putting it in direct competition with Schwab’s SCHE rather than iShares’ EEM. In November 2015 the fund initiated another change, this time to include both small-cap stocks and China A-shares. It eased into this change with a dynamic transitional index, completing the transition in September 2016. Since VWO has no exposure to South Korea, it has more space for China, Brazil, India and the rest of the emerging nations compared with our MSCI benchmark. Including stocks from the Chinese mainland and going deeper into the market-cap spectrum made the fund even more representative of the EM space, but also reduced underlying liquidity somewhat. Still, VWO is a solid choice for comprehensive exposure to emerging markets without South Korea.

By looking at the daily chart, we could see the massive uptrend that has been going on the VWO in the past 12 months since the market bottomed out around the 20th of March. The VWO has actually been one of the best performing ETFs after that but that comes as no surprise if we look at the companies the fund invests in. In other words, the tech-dominated VWO has been among the best performers during the pandemic as some of the biggest winners throughout the last year have been indeed technology companies.

The price bottomed out around the $30 lows in the 2nd part of March 2020 and has kept on breaking major resistance levels to the upside, such as the $45, followed by $50 and $55 to reach the all-time highs at $57.

In fact, among the main reason for the continued bullish rallies we have seen in the last few months, despite the overall overbought situation in the market were the strong Q4 and Q1 earnings reports for 2020 and 2021 respectively. Most of the leading technology companies have reported better results than expected and that has been very bullish for their share prices afterwards.

Due to the massive rally that we saw for 11 months in a row and the fact that the market managed to reach new all-time highs back in February, we became more careful and cautious as to where it would be reasonable to open long positions in some of our favorite tech names.

Even though the market was still in a massive uptrend last month, our analysis showed that it was becoming increasingly risky to buy at these extremely high levels, thus we issued our cautiously bearish view for February and advised all of our followers to wait for a better entry point. The thing that really worried us was the fact that while the price was forming higher highs and higher lows, this wasn’t really confirmed by the technical indicators, such as RSI, MACD and Bollinger bands. In other words, we are observed a serious discrepancy between the chart and the indicators, which is usually referred to as a “divergence”. Once again, our analysis proved to be spot on as the VWO and the broader Technology sector has experienced a pretty vicious almost 11% selloff throughout the last couple of weeks, which has taken the price for the ETF down from $57 to $51. All of the tech stocks are currently trading at substantial discounts to where they were just few weeks ago and those of you that have been following us, managed to not only protect their gains, but to also avoid the trap of buying at the top.

The RSI has already retraced from overbought territory, which is generally positive for the strong uptrend, while the MACD has already started to turn back up, confirming that the recent pullback for the ETF might be over. Moreover, the price is currently locked between the 50 DMA and the 100 DMA, which are both providing crucial and very strong support for the price at these levels.

Overall, we remain bullish on the stock market and on the VWO more precisely and believe that after the recent corrective movement the long-term massive uptrend would be resuming soon. Our innovative market approach allowed us to predict the most recent downturn in the market and in the Technology sector, which ended up protecting our capital, secured our gains and now gives us the opportunity to buy some of our favorite names at a 15-20% discount. We believe that the price will most likely trade sideways for few more days within the $52-54 range before breaking up and resuming its strong fundamentally and technically supported uptrend. In the unlikely scenario of $52 being broken as a support, we would expect the price to test the next strong support at $50 where traders and investors are likely to see that correction and the price testing a key support level as a very good buying opportunity at an even better discount, which would give us a chance to buy lower and make higher profits to the upside.

SPY

The SPY has got assets under management of $334 billion at the moment and its average daily trading volume is $26.75 billion. In other words, it is an extremely liquid ETF that invests in the biggest companies within the S&P 500, giving an opportunity for investors to get an exposure to the most well-known companies out there without having to pick individual stocks by themselves – a very suitable option especially for less experienced investors.

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 12 months has taken the price from the March 23rd lows of 2020 around $218 to the $395 all-time highs in the beginning of March, 2021. This represented an astonishing 81% gain for the ETF in less than a year. However, the road to the current all-time highs was filled with many different hurdles and the bulls had to overcome quite a lot of obstacles in order to keep pushing the prices higher. There were 3 larger correction movements of around 10% that took place during this strong uptrend as well as multiple smaller 3-5% declines but the trend remained intact. At any rate, the ETF has continued to break high after high as the leaders in this ETF are indeed some of the best performing individual stocks in the market with the likes of Apple, Microsoft, Alphabet, Facebook, Tesla, Netflix, Walt Disney etc.

The ETF is currently sitting at the $394 region in a 2nd attempt to break the $395 all-time high level. After being rejected by the strong horizontal, psychological and all-time high resistance at $75, the SPY has managed to find a lot of buying interest and it looks like its ready to break higher. This most recent rejection could be taken either as a signal for a fading bullish momentum and for a potential price correction ahead or as a momentum gathering period throughout which the bulls are trying to build some strength for the next push higher. A more meaningful correction should not be completely discarded as a potential scenario as nothing can go up or down in a straight line forever and after the strong bullish rally in the past 12 months it will be more than normal to see such downward corrective movement. However, we believe that the new $1.9 trillion stimulus package accepted in the US, will inject a lot of liquidity into the market. We expect most of the big tech names and retail trading favorites to restore their favorable image among traders and investors in the coming weeks, thus we anticipate that the SPY and the XLI will definitely perform well in March.

While we believe that the stock market in the US is currently holding a lot of intrinsic risks – COVID-19, the newly formed office in DC, the economic recovery, the post-Brexit economic reality for the UK and EU etc. – and that we could be in for a sideways and choppy price action in the coming months. However, we see that the winners would most likely continue to win. We remain cautiously bullish on the SPY ETF in the short term and believe that any price corrections should be treated as great opportunities to buy this strong performing benchmark ETF and some of the stocks in it at a good discount, which would in turn give us a chance to maximize our profits to the upside. However, we need to point our that some of the technical indicators that we are monitoring closely on a daily basis (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) are yet to confirm that the next leg higher will be coming, which is something that we need to see first, before jumping in again on the long side. Despite the strong uptrend on the price chart the daily RSI has failed to make a higher high since November, 2020, which is definitely a signal for a fading bullish momentum. Furthermore, the RSI has been moving lower since January. At any rate, SPY is still trading above its 50 DMA and 100 DMA, which on the other hand is clearly showing that the strong uptrend is still intact. In addition to that, it is important to note the fact that the SPY is heavily influenced by the largest sectors by market cap out there – XLK and XLC. We are bullish on both of these sectors, thus we believe that the SPY will experience a relatively stable push higher.

Acknowledging the fact that we are once again approaching the all-time high levels in a time filled with plenty of uncertainty and high volatility, we would like to point out that buying at these levels would be more suitable for risk-oriented investors, while risk-averse traders should wait for a minor 5-7% correction before jumping back in on the long side. Thus, we are advising our risk-oriented followers to go ahead and start buying the stocks of some of the companies with the highest percentage weight in the SPY ETF right now that also have solid business models and good overall positioning.

Conclusion

In conclusion, after analyzing Alibaba’s fundamentals, new products and features, recent financial performance, as well as the technical picture with the recent sell-off and the strong support level that is currently at play we wanted to get a further confirmation as to whether BABA qualifies as a qualitative stock purchase according to the DowExperts. Following the recent declines for the stock, we looked at 2 ETFs that have a strong positive 10 year correlation in order to put the recent sell off in BABA’s stock into context. By doing so, we could further test our short-term cautiously bullish and long-term bullish stance for the stock in the right way. Both VWO and SPY confirmed our expectations for an initial short-term weakness before the resumption of the long-term bullish trend for BABA’s stock. Thus, we will take advantage of the great long-term bullish potential, by opening 1/2 of our overall positioning at the current levels, and will be looking to add more to our BABA exposure on any additional declines both caused by either intrinsic company weakness or by a broader market sell off.

Our short-term correction targets to the downside are going to be placed at $215 and $200, where we will be looking to further add to our Alibaba long position, thus improving our average cost basis on the trade.

As the price starts to reverse back to the upside, we will be interested in collecting our first profits at the $310 mark. Our next profit-taking area is positioned at $340 and $355 respectively, where we will be collecting the majority of our profits.

Sincerely,

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