Alibaba stock sunk to a two-year low yesterday under the threat of increasing regulation. But how much worse can it get for BABA? Unfortunately for shareholders, the answer is it could get much worse in the short term. Despite halving in value since October, BABA’s decline shows no signs of slowing down. Yesterday’s closing price of $160.55 was the lowest since August 2019. Furthermore, it breached the last bastion of technical support, which may set the stage for an even deeper decline.
Alibaba Group Holding Ltd. ADR (NYSE: BABA) is crumbling under the weight of the Chinese government’s crackdown on the nations biggest tech companies. Tencent Music and ride-hailing app DiDi global have endured similar fates, although the Alibaba stock price has suffered more than most. At last count, BABA is almost exactly 50% below 2020s all-time high of $319.32.
Furthermore, yesterday Tencent warned the market to expect more regulations in the future. As a result, investors are fleeing Chinese equities, sending the Hang Seng Index to its worst weekly performance since March of last year and the lowest price in 2021. However, unlike the sharp reversal in 2020, the Hang Seng and Alibaba look sure to continue lower.
The daily chart shows the Alibaba stock price has broken down from a descending wedge pattern, aligned with the support offered by the March 2020, $170 low. This is incredibly negative price action and should allow for a test of 2019s double bottom at $130.
The Relative Strength Index (RSI) reading of 20.16 is on the floor and its lowest ever. However, given the capital flight, this does not suggest an immediate recovery. And even if it did, a new round of restrictions would no doubt send the price lower again. And it’s for that reason, the best course of action is to steer clear of not just BABA but Chinese equities as a whole for the time being.
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