Benzinga - Alibaba Group Holdings, Ltd (NYSE: BABA) gapped up almost 11% higher to start Tuesday’s trading session after the company announced its plan to divide into six independent entities.
Through the restructuring, Alibaba will unlock shareholder value, according to Thomas Hayes, founder of Hedge Funds Tips. Eventually, each of the divisions may seek an initial public offering.
Shares of Alibaba reacted by gapping up above the 200-day simple moving average (SMA) and that area is now likely to act as support.
The 200-day SMA is an important bellwether. Technical traders and investors consider a stock trading above the level on the daily chart to be in a bull cycle, whereas a stock trading under the 200-day SMA is considered to be in a bear cycle.
The 50-day SMA also plays an important role in technical analysis, especially when paired with the 200-day. When the 50-day SMA crosses below the 200-day SMA, a death cross occurs. When the 50-day SMA crosses above the 200-day, a bullish golden cross takes place.
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The Alibaba Chart: A golden cross formed on Alibaba’s chart on Jan. 23, indicating the stock was entering a new bull cycle. On Feb. 24, however, Alibaba dropped under the 200-day SMA, which put the stock in danger of seeing a death cross form. If Alibaba can remain above the 200-day and regain the 50-day SMA as support, a death cross will be averted, and the two indicators will begin to curl upwards.
- Alibaba is trading in a confirmed uptrend, with the most recent higher low formed on Monday at $85.50 and the most recent confirmed higher high printed at the $88.38 mark on March 23. If Alibaba trades lower on Wednesday, Tuesday’s high-of-day will become the next higher high within the pattern.
- Bullish traders want to see Alibaba consolidate above the 200-day SMA for a period of time, while bearish traders want to see the stock fall back under that level on higher-than-average volume.
- Alibaba has resistance above at $96.17 and $104.44 and support below at $89.95 and $83.84.
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