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Alibaba earnings to keep stock above 50-day SMA?

Alibaba is set to announce its latest quarterly results before US markets open today, Thursday, November 17.

Here are the market forecasts for some top-line figures from the three months ending 30th September 2022:

  • Revenue = CNY 208.85 billion (US$29.3 billion), which would mark a 4.1% growth in Chinese Yuan terms compared to the same period in 2021 (year-on-year).
     
  • Earnings per share (EPS) = CNY 11.21 (US$1.57); 64.5% higher year-on-year.
     
  • Net income = CNY 29.5 billion (US$4.14 billion); 59% y/y increase.

 

Recall how in the prior quarter (three months ending June 2022), Alibaba posted its first-ever year-on-year drop in sales.

Hence, this expected return to growth on the above key metrics would be a welcomed relief for a stock that’s still down by 34.2% so far this year.

China’s demand outlook key to Alibaba fortunes

While these improving financial figures are likely thanks to cost control measures put into place for its grocery stores business as well as its operations outside of China (though international sales typically account for only about 7% of total revenue), markets are aware that China’s sluggish economic recovery is still weighing on Alibaba’s fortunes.

Note how Alibaba’s recently concluded Singles Days sales (November 11th or 11.11) appear flat, with the company saying that GMV (gross merchandise value) was on par with last year’s CNY 540 billion.

That suggests that China’s stubborn economic challenges stemming from its Covid Zero campaign is hurting this e-commerce giant, which relies heavily on demand from its 1 billion monthly active users.

 

How might Alibaba’s stocks perform today?

Markets are forecasting an 7.25% move, either to the upside or downside, when the US cash session kicks off today (recall that Alibaba’s results will be made known before US markets open for Thursday, November 17th).

If a 7.25% single-day move does materialise, that would be larger than the average 4% post-earnings move since its 2014 IPO.

On a longer timeframe, markets appear significantly less bearish on Alibaba’s share prices. The put-to-call ratio is nearing a record low for this internet giant’s US stocks (as opposed to Alibaba shares which are listed in Hong Kong).

 

Beyond Alibaba’s own results, this stock is also set to react to broader market forces.

Note how Chinese tech stocks have sold off during today’s Asian session, amid news that Tencent is looking to divest US$ 20 billion of its stake in shares of Meituan, the meal delivery company in China. Tencent had previously announced similar moves for its holdings in the likes of Sea Ltd (Southeast Asia’s largest internet company) as well as online retailer JD.com.

Further belt-tightening for China’s tech giants could mean more pain in store for these stocks, until such corporate moves are reflected in stronger underlying fundamentals.

 

50-day SMA to act as immediate support

Looking at the price chart for Alibaba’s shares in particular, November has been a stealer month so far. Its 23% month-to-date gains have pushed this stock back above its 50-day simple moving average (SMA), which is set to be a crucial support area.

Still, this stock has a long ways to go, as it still languishing by 74% below its October 2020 record high.

Can Alibaba stay above its 50-day SMA?

A 7.25% move to the upside today, if market’s post-earnings forecasts prove true, would see this stock testing the 38.2% Fibonacci level as immediate resistance.

However, a 7.25% move to the downside from yesterday’s close should see this stock moving back below its 50-day SMA and also the 23.6% Fibonacci retracement line from its July-October decline.

Such a downcast move would likely also result in slumped shoulders among investors and traders who are pining for a sustained recovery in China tech stocks.

 

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