Alibaba published its second-quarter report on Friday morning. Although the company’s gross revenue came in below analysts’ forecasts ($34.6bn vs $35.1bn), BABA’s share price surged by around 13% (to its highest level since March) as the market reacted positively to:
→ Faster growth in cloud services revenue, seen as key to the company’s success in monetising artificial intelligence, similar to Microsoft and Google.
→ Testing of a new processor designed to reduce reliance on Nvidia.
Technical analysis of Alibaba (BABA) shares
When analysing BABA’s price movements in early July, we identified a resistance zone at $126–$145.
Since then, the price tested the $126 level twice in August, reversing downwards each time. However, the earnings release triggered a wide bullish gap, meaning that $126 could now act as support.
Further bullish arguments:
→ The A-B-C-D-E formation created a contracting triangle, which can be interpreted as a long-term balance of supply and demand. The current bullish impulse breaks this balance, pointing to the potential for a major bullish trend.
→ Starting from point D, price movements have formed an ascending channel (shown in blue), with its median and lower boundary potentially serving as support.
From a bearish perspective, the sharp 19% rise could encourage investors to take profits on existing long positions, as the RSI indicator has moved into overbought territory and BABA’s share price is close to the upper boundary of the blue channel.
Taking all of this into account, we could assume that after the initial strong emotional reaction to the news, the market may reassess its impact and BABA’s share price could correct (for instance, towards the lower boundary of the gap at $128.22).
At the same time, the strong fundamental outlook, driven by the company’s prospects of becoming a leader in the AI sector, suggests that by the end of 2025 we may see an attempt to break above the March high (point A).
