BABA: Wall Street's Black Sheep

With much fanfare, Alibaba Group Holding Ltd. (NYSE: BABA) made its Wall Street debut on Friday, 9/19/2014, via the largest IPO in world history that valued the company at over $200 billion USD.

Per Google Finance, Alibaba is a China-based e-commerce group that operates several online marketplaces for the purpose of bringing buyers and sellers of various products together.

Today is cruel. Tomorrow is crueler. And the day after tomorrow is beautiful.
— Jack Ma, Founder of Alibaba

The company's Founder and Executive Chairman, Jack Ma, came from humble beginnings, having formerly worked as an English teacher before his entry into internet entrepreneurship in the late 90s. He is now the richest man in China.

Unfortunately for post-IPO investors, BABA has failed to live up to the market's early excitement. On its first day of trading, BABA initially soared to as high as $99.70 a share but closed at $93.89, having traded as low as $89.95 before bouncing back for the finish. The close marked an over 35% gain above the IPO price of $68 a share.

$BABA : Alibaba Group Holding Ltd.

In the four weeks since its public introduction, BABA shares have essentially drifted lower.

As can be seen from the chart above, both the daily and 60 minute time frames show a downtrend in price extending to mid-October. Of notable observation, the bulls have failed to close the stock above $90 since 9/29; interestingly, this date also coincides with the first day that BABA options began trading.

On 10/15, BABA recovered from a low of $82.81 to close at $85.60. The chart shows a bounce taking place, a sign that demand for shares exceeded supply at these levels. The stock managed to trade as high as $90.90 on 10/17 but closed for the day and week at $87.91.

For BABA bulls to sustain their recent momentum, a close above $90 resistance will be desirable. The stock's lowest close thus far is $84.95 on 10/14. We will be watching the $84/$85 level as an area of support on any pullbacks. Bulls should ideally defend this price level from any future selling pressure brought on by the bears.

Conclusion

BABA is an example of why trading IPOs is difficult due to the limited history available for making a judgment call, whether based on fundamental or technical/price action analysis.

The company is expected to issue its first earnings report between 11/17 and 11/21. Ahead of this important disclosure, BABA remains the black sheep of Wall Street, considering its IPO date coincided with recent market peaks.

If BABA manages to rise to and uphold its IPO highs, this would convey a sentiment shift in favor of the bulls while vindicating the market's original high expectations for the stock.