BABA Update

BABA if nothing else is a picture perfect example of a head fake move, why they are run, what the warnings signs are, what the probabilities are in the near futures, etc. While we use the term "Head Fake" loosely, it's generally a concept in which price does one thing that sets up the exact opposite reaction so during the actual head fake, that's when smart money is taking action and when we want to be as well as the resulting outcome will be emphasized and benefit from the head fake move- a price move that is above all, deceptive and convincingly so.

BABA's particular kind of head fake is a concept that works very well and is very dependable, there are other concepts that tie in to forming it so there's a lot you can use even if you have no interest in BABA itself. This particular head fake move is one of the first I discovered before I started using 3C, The Channel Buster.

Here's our first post on BABA,  from Monday November 10th, Alibaba (BABA) In this post you'll find not only our forecast for a channel buster, what a channel buster is, where we expect the highest probability pullback in BABA to end up and whether or not BABA would be a buy to continue its uptrend or if something has changed in BABA in a larger sense. There must be an additional 30 posts covering BABA since.

 BABA was in a nice clean channel after putting together some early accumulation/base in early October. In yellow, it made a move to the upside with an increased rate of change, what we called on November 10th, a "seemingly" bullish move, but in fact it was a red flag. Just as we have talked about volatility in recent days regarding the market with the worst weekly performance in 3 years followed by the best 4-day performance in 3 years the very next week, volatility like this is a warning sign of a change to come.

The general concept of a channel buster (from either direction, below or above the channel) in this case is like a type of selling climax. The day after we posted our first post ever on BABA and it being a Channel Buster that had a high probability reversal and the most probable target being below the channel quickly after the reversal started, the very next day, the channel buster in yellow made it's first significant move down at the first red arrow and quickly proceeded to our most probable target at the small red trendline, a gain of nearly +10% for anyone entering it as a short.

Our other reason for watching this move in BABA was to see if there was any strong accumulation once the target was hit and if BABA stood a reasonable chance of being a nice pullback long entry at that point once our downside target was hit. Or... if something had perhaps changed in BABA and it possibly becoming another trade (short), although I warned if that were the case, we'd likely go through a lateral chop period forming a top before any significant move down.

 At the time because BABA is a rather new issue, we didn't have enough daily bars to apply our X-Over system, but we have just about enough now and we have 2 of 3 signals solidly on the sell/ short side with the 3rd just moving in that direction, Wilders RSI 14 below 50 (bottom).

Note also since our downside target was hit, we didn't get a new move to the upside, but a rather large, choppy lateral range. So far much of this suggests BABA may have flamed out and its uptrend is ended.

Also lacking to enough data as a newer issue, we can't use very long3C charts with BABA, but as you can see at the time we posted the first post above with our expectations, we could already see distribution in the move above the channel,  thus the "seemingly bullish" caveat to price's move.

This is the entire history for BABA since IPO with stage 1 base/accumulation to the far left, stage 2 mark up in the channel and at the green arrow, stage 3distribution and top at the red arrow which is exactly where our first post was published November 10th. Since, this being the longest, moist useful chart at 15 mins., it looks like BABA is seeing further deterioration to the dar right as it is starting to lead negative.

 On a 3 min chart that has more detail, we can see the distribution at the Channel Buster increased rate of change in price to the upside,  it was being sold by pros while retail was chasing price higher as it broke out of the channel...A HEAD FAKE MOVE.

Since hitting our initial most probable downside target, BABA has fallen lower with 3 min accumulation and a head fake move below support at the yellow arrow marking the start of a move to the upside on minimal accumulation which as you can see has turned to a negative divegrence.

I don't see any strong evidence that BABA has or will accumulate for a new leg higher as we were originally interested in finding out once our downside target was hit.

 The 10 min chart is more of an overview again like the 15 min with stage 1 accumulation to the far left, stage 2 mark up/ rally and stage 3 distribution right at the breakout of the channel, a positive divegrence attempting to get some upside going and that turning negative.

I have to give the 15 min chart the most weight right now and while this is not a perfect set up for any trade, it looks like a much better short than long, I'd just prefer see a move to the upside with sharper negative divergences on shorter timeframes joining our longest 15 min chart.

The very near term 1 min chart shows the accumulation to the far left, an attempt at stage 2 that moved to a negative divegrence and is in line with lower prices.

I prefer not chase anything lower as a short position, but I'd put this on your radar, it may be worth a partial entry, leaving room in case some better upside prices materialize in to distribution allowing you to fill out the position at better prices or just have alerts for any such move as that would present an opportunity, if it comes, GREAt, if not, nothing lost.

If you need an update for BABA, just let me know, but I suspect it has flamed out already for the time being and will likely see lower prices.