בס״ד

BABA…!  BABA…!  I’M SO SORRY, BABA…  (BABA, HD)

Posted on February 24, 2022

Alibaba (NASDAQ:BABA) stock has been in trouble since October, 2020.  And whether the cause is related to Jack Ma or to his issues with the resolutely evil Communists who control the Chinese mainland is neither here nor there.

The company’s stock is falling and now looks dangerously close to collapsing.

Our rationale for that prognosis, as always, is below.  As is our meticulously crafted (risk-defined) options trade of the day, that offers you a potential return of 1150%!

But more on that in a moment.

First, we’re closing one trade for a healthy take.

Our HD initiative, whose details can be found HERE, sees us short one lot of shares with a breakeven at $311.09.

The shares are now going for $308.45, and we say it’s time.

Buy ‘em back and you walk with $2.64 NET on an initial investment of $3.50.

And that’s a lively 75% return on funds.

And now we get down to business.

Tech business.

From China…

Where ongoing investigations into Alibaba about ‘disorderly capital’ (anti-CCP) activities are ramping up, and the country’s insane ZERO-COVID policy is destroying lives and businesses.

BABA releases earnings today, so the truth will out soon enough.

Consensus is for a 60% drop in Q4 EPS.

WHAT!?

Here are some further fundamentals –

  • P/E is 15.84, but Forward P/E is an infinitesimal 1.93.
  • The stock pays no dividend.
  • Price to Book is 2.00.
  • Earnings this year fell by 2.20%
  • Earnings for the next FIVE YEARS are expected to grow at a rate of just 3.31%, according to analysts’ consensus.

So why bother…?

Especially after you see this –

Yes, they’re just technicalities…

But they matter.

  1. For instance, both RSI and MACD are sub-waterline bearish (in green), with little indication that we’ll escape that condition in the near term.
  2. Price action also looks rotten.  The stock has not seen a genuinely hopeful technical set-up since it topped sixteen months ago.  It’s been all downhill since then, and the current descending triangle looks more dagger than party hat (in red).  As of last eve’s close, price is sitting directly on support at 110.  Any move below that level will trigger massive selling, in our estimation.  Now’s the time to act.
  3. Price is also trending below all her salient moving averages (in purple), and all those MAs are likewise trending lower.  In other words, we’re fully unfurled and awaiting the wipeout.
  4. The only item that gives us pause is the buying that has emerged at the 110 level (in black).  Four times the bears have brought her to that level, and four times she’s bounced – albeit never with sufficient strength to retake the declining upper (red) trendline.
  5. Indeed, today’s action may tell the tale.

All told, the matter is sufficiently negative for us to set the following trade –

A Jew and His Gold recommends you consider selling the BABA April 14th 110/115 CALL spread* for a credit of $2.30 (13.05/10.75) and buying the BABA April 14th 115/110 PUT spread** for $2.70 (11.00/8.30).  Total debit on the affair is $0.40.

[*Sell the 110 CALL and buy the 115 CALL.  **Buy the 115 PUT and sell the 110 PUT.]

Rationale: for just $0.40 we have a chance to walk with $4.60 NET, and that’s a solid mail-order 1150%.

Max downside is $5.40 (difference between the CALL strikes plus the initial debit).

We pocket full room and board with a decline of just 4.30% from the current stock price.

And that’s just a click away.

If the good Lord wills it!

May the Holy One, Blessed Be He, always grant you grace, good Jews and Noahides,

and may your ship come in at precisely the right time.

Many happy returns!

Matt McAbby

 

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