Alibaba: Warning, Too Much Pressure Ahead

Intro

In the complex, the fundamental situation, and the technical picture indicates the beginning of a period of increased pressure on Alibaba (NYSE:BABA) quotes.

Negative background from China

Growing concerns about China's business activity, as its zero-COVID policy potentially means new lockdowns and restrictions on domestic movement, led to a sharp weakening of the yuan last week:

In parallel, futures prices for copper and silver (key industrial metals) broke their uptrend. This is also a negative sign, indicating lower expectations for the economic recovery of the Chinese economy.

The key reason for the cheapening of metals and the yuan was new highs in the daily incidence of COVID in Shanghai, despite the effect of strict restrictions. On Sunday, April 24, 19,455 cases of the disease were detected in the city. Quarantine in Shanghai is now in its fourth week, while the city's contribution to national GDP is at least 10%...

I want to remind you that recent statistics have already pointed to a slowdown in the Chinese economy. In March, China reported the biggest decline in consumer spending and the highest unemployment rate since the start of the pandemic. Retail sales fell in March for the first time since 2020:

The observed unemployment rate rose to 5.8%, the highest since May 2020:

So, the Chinese economy is forced to slow down and this is generally a bad background for the Chinese market.

Weak expectations before the report

Alibaba receives over 90% of its revenue from the domestic market:

Given the clear signs of a slowdown in the Chinese economy in the first quarter, I simply do not see a chance that the numbers of the upcoming quarterly report can surprise the market. It is worth adding that the dynamics of average analyst expectations regarding the company's revenue and EPS confirm my fears:

Dangerous technical picture

On March 14, there was a gap in Alibaba's daily quotes. This price action provided strong support at $86:

On April 25, the price of the company's shares fell below this level, which I personally consider critical. In my opinion, if the price does not rise above this level in the next two trading sessions, a further decline to the local low at $73 is very likely.

Bottom line

In general, the situation does not cause optimism for me personally. The weakening of the yuan and the slowdown in consumer demand in China is directly negative for the company. I repeat that the next two sessions will be critical. But in any case, I do not expect a significant increase in the company's price before the publication of quarterly reports.