BABA Channel Buster Follow Up

While I haven't called this out as a specific trade, I know some of you have taken it as a short in to at least a pullback based on the Channel Buster concept so in a way, I'll be updating this as a position also for those of you who have emailed me about it.

There are 4 posts covering BABA since last Monday, the first is the most important and if you are not familiar  with the Channel Buster trade set-up concept (or analysis), then this is the one you'll want to make sure to read,

Monday November 10th as BABA was still in a strong uptrend with no technical signs of a pullback, Alibaba (BABA).

Tuesday November 11th, BABA pulled back the next day -3.87% after the post Monday (above), BABA Follow Up . In this post I expressed the idea that I'd like to see BABA run sideways from there for a few days so we could asses whether or not it was a worthwhile short candidate for a pullback.

The pullback itself was to (and still should) whether BABA is still as strong as it has been, whether it is worth a long position on a pullback (lower prices, better entry & lower risk) or if something has changed in BABA after a pretty parabolic move up, in that case a larger trade set-up/short. BABA headed sideways in a range for 4 days since Monday the 10th.

Wednesday September 12th, BABA Follow Up  At this point we established where the Trend's stop was via the Trend Channel, where the moving average defining the trend was (60 min 30-bar) and where it would head after breaking the 30-bar (to the 60 min 50-bar), all of which happened, but the most likely concept was a deeper pullback on a Channel Buster move, which is a sharper, deeper reversal.

As explained in Monday's first post when BABA looked like this in a seemingly strong move on heavy volume, which we see as a warning flag of a change in trend imminent...

 BABA as of our first post Monday 11/10 and the Channel Buster and the most likely price resolution as this "seemingly" bullish move is actually a bright red flag.

BABA since...

The very next day BABA pulled back almost 4%, it broke our Trend Channel stop for this uptrend, the 50-bar and 60 bar moving averages and now has broken clear through the channel.

On Friday 11/14, I posted BABA Trade Set-Up with the lowest risk entry, which was the day of the small Doji after the big decline (3rd day back). I'd have preferred to see an entry above the recent range as that would have increased the risk/reward ratio and lowered risk on the trade.

Some of you have taken the short since and this morning BABA broke the lower channel, hitting the stops we expected to find there. The lower channel was at the psychological $111 whole number...

 A channel buster almost always hits the bottom channel as a minimum target, but often takes out stops below the channel as it did this morning (stops are also within the channel for shorter term traders.)

You can see the tail take out $111 with a low of $110.41 this morning

On the 60 min chart you can see the lower trendline and the increased volume as $111 was hit at the lower trendline.

While a Channel Buster is its own unique concept and they work for up channels, down channels and breaks below an up channel (running above the channel before collapsing), THESE ARE PART OF THE WIDER "HEAD FAKE" CATEGORY OF MOVES. The increased upside rate of change and breakout from the channel "seems" bullish, but it's a  change in character that is a red flag for a trend change, whether a simple, but deep pullback as the Trend has already been broken, or something else, that's what we determine next and decide what type of trade BABA is offering.

 The X-Over Channel to avoid false moving average cross-overs or whiplashes shows the trend hold with one whiplash that remained long the trend until the red boxes.

Since there's not enough trade data to construct the same moving averages yet on the daily, this is what the daily would look like, 2 of 3 indicators are long and typically the first pullback after a long signal is to the 10-bar (yellow) moving average, however the blue 22-bar is not that rare and is often the second pullback area which would also complete the Channel Buster move to the most often seen pullback, below the channel. Playing "Devil's Advocate", those stops were hit below $111 this morning.

 The Trend Channel that had held this trend on a 60 min chart also broke.

Since we don't have enough data to construct a trend channel on the daily chart I've widened out the 60 min. Trend Channel, for those following along, move the AVGC from 10 to 30 and the timeframes of 11 to 31 and widen out the Channel Width to 30 (3 standard deviations).

The stop on a close would be $112.86 and this would be a serious breach of the trend.

As for 3C...

 As I said in the first post, BABA is very strong, this 2 hour chart shows that, although you can see recent damage, it does not rise to the level of a stock I'd consider a core short, in fact it looks repairable from here.

 The 10 min chart is what we had to go on as of 11/10, this divergence told us we'd be seeing a move lower, but since it has ,moved to near confirmation, although still in a leading negative position, again it can be repaired, but thus far the repair or a strong enough signal to take BABA as a pullback long is not there.

 The 3 min chart goes from in line, notice it is in line longer than the 10 min chart which is divergent long before-this is the same concept I have been talking about all morning with longer charts divergent and then the shorter charts move divergent as "timing" charts.

So far it is leading negative since distribution at the top and still in line.

If I was short here, it would be a coin toss as it was never expected to be more than a pullback trade, but a stronger channel buster type. If I were looking for a pullback long, I'd stay patient. If I were to stay short, I'd be watching every indication closely, especially longer intraday candlesticks that might put in bullish reversals like a 15 min, 30 min or 60 min and on rising volume.

The most telling indication right now is the 1 min chart which is negative, almost as a perfect timing indicator, now you know why it was so important for me yesterday to be watching for 1 min signals in FAZ today, but at the run of $111 stops, there's no accumulation of them yet which leads me to believe it is not done on the downside.

If you need an update on the stop channel or the 1 min chart, just email me.

I believe there at least 2-3 very strong trade probabilities here, it just depends on what the next candle/day or so does.