BABA at Key Support

BABA Weekly

There have been a whole lot of eyes on BABA lately and on the move to new all-time highs in early-June. I've been hearing many bullish calls for higher prices, breakouts, etc. I don't disagree with this thinking but just likely on a different path than most who were making those calls.

BABA has gone on a beautiful run over the last 2-months, rallying 8 straight weeks from the range lows to new highs. These kind of strong and persistent moves tend to attract a lot of attention, especially near the end of the near-term run.

There will no doubt be talk today of a "failed breakout" due to the drop it made off the highs. However I feel this is EXACTLY what is needed before prices can resume higher in any meaningful way. The market loves to fool the majority and will most often shake out the bullish excess of a recent rally before resuming back higher.

What I have had in mind for a more preferable setup vs just buying into the extended run was for a pullback to occur on the weekly chart that breaks back below the prior highs. Today we are getting exactly that.

The Weekly chart above is now showing a textbook pullback or Bull Flag to the rising 20 Week SMA as well as filling the open gap from 5/4; this is my bread-and-butter setup.

The confluence of support on the larger timeframe in my view overrides any "false breakout" on the Daily chart. I always yield to the higher timeframe structure and in this case the difference between the shorter-term and longer-term bias is quite pronounced.

The fact that most short-term traders are now bearish is a good sign for the longevity of the larger timeframe trade.

As of now this is just the initial pullback or the setup; the price action has not confirmed a verified pivot yet. For me that means buying only a partial position here on the support and then waiting for a rotation up on the Weekly chart. This will likely take a week or two to develop further.