Benzinga - Alibaba (NYSE:BABA) Group Holdings Ltd - ADR (NYSE: BABA) and Nio Inc - ADR (NYSE: NIO) were trading near to flat on Friday, holding up comparatively well to the general market, which had seen the S&P 500 tumble 7% since the market opened on Tuesday.
Alibaba competitor Amazon.com (NASDAQ:AMZN), Inc. (NASDAQ: AMZN) was also showing some strength, trading mostly sideways on lower-than-average volume.
All three stocks started the trading day with inside bar patterns on the daily chart. An inside bar pattern indicates a period of consolidation and is usually followed by a continuation move in the direction of the current trend.
An inside bar pattern has more validity on larger time frames (four-hour chart or larger). The pattern has a minimum of two candlesticks and consists of a mother bar (the first candlestick in the pattern) followed by one or more subsequent candles. The subsequent candle(s) must be completely inside the range of the mother bar and each is called an "inside bar."
A double or triple inside bar can be more powerful than a single inside bar. After the break of an inside bar pattern, traders want to watch for high volume for confirmation the pattern was recognized.
- Bullish traders will want to search for inside bar patterns on stocks that are in an uptrend. Some traders may take a position during the inside bar prior to the break while other aggressive traders will take a position after the break of the pattern.
- For bearish traders, finding an inside bar pattern on a stock that's in a downtrend will be key. Like bullish traders, bears have two options of where to take a position to play the break of the pattern. For bearish traders, the pattern is invalidated if the stock rises above the highest range of the mother candle.
The Alibaba Chart: Alibaba’s inside bar pattern is neutral because although Friday’s price action is taking place at the lower range of Thursday’s mother bar, the stock could be consolidating under the 200-day simple moving average (SMA). If Alibaba continues to consolidate sideways, the likelihood of the stock breaking up above the 200-day SMA becomes greater.
Alibaba has resistance above at $89.95 and $96.17 and support below at $86.29 and $83.84.
The Nio Chart: Nio’s inside bar is also neutral because although the stock was trading lower before forming the pattern, the consolidation is taking place above the 50-day SMA. If Nio breaks down from Thursday’s mother bar later on Friday or on Monday, bullish traders will want to see Nio print a bullish reversal candlestick, such as a doji or hammer candlestick, above the 50-day.
Nio has resistance above at $14.31 and $16.75 and support below at $11.38 and $9.48.
The Amazon Chart: Amazon started the trading day with an inside bar but broke bearishly down from Thursday’s mother bar, although on lower-than-average volume, which indicates the temporary bottom could be in and the pattern isn’t being recognized. If Amazon closes the trading day near to flat, the stock will print a doji candlestick, which could also indicate a bounce is on the horizon for Monday.
Amazon has resistance above at $89.03 and $90.77 and support below at $85.87 and at $80.
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