Alibaba Stock Surges 6.93% on Bullish Engulfing Pattern as Technical Indicators Signal Uptrend

Candlestick Theory

Alibaba Group (BABA) has exhibited a two-day upward trend, with a 6.93% gain over the past two sessions, suggesting short-term bullish momentum. The most recent candlestick pattern—a bullish engulfing formation—confirms a reversal from prior bearish pressure. Key support levels can be identified at the 115.73–117.07 range (July 14–August 11 lows), while resistance is clustered near 126.86–127.93 (August 13 high). A breakdown below the 115.73 level could trigger a retest of the 108.22–113.41 range (July 14–June 30), whereas a breakout above 127.93 may target the 132.43–135.63 zone (March 27–April 14 highs).

Moving Average Theory

Short-term moving averages (50-day and 100-day) are currently above the 200-day MA, indicating a bullish bias in the intermediate term. The 50-day MA at ~120.50 and 100-day MA at ~117.50 form a positive crossover, reinforcing the uptrend. However, the 200-day MA at ~113.00 acts as a critical support line. If the price remains above this threshold, the uptrend is likely to persist; a close below it would signal a potential shift to bearish territory. The confluence of the 50-day MA and recent price action above the 126.86 level strengthens the case for continued buying pressure.

MACD & KDJ Indicators

The MACD histogram has turned positive, with the MACD line crossing above the signal line on August 13, forming a golden cross. This aligns with the KDJ indicator, where the K-line crossed above the D-line into overbought territory (K=85, D=75). While these signals suggest a short-term continuation of the rally, the RSI’s proximity to 70 (overbought) and the KDJ’s high readings imply caution. A divergence between price and MACD (e.g., if price hits new highs but MACD fails to follow) could foreshadow a pullback.

Bollinger Bands

Volatility has expanded recently, with the bands widening to 125.08–127.93 as of August 13. The price is currently near the upper band, indicating overbought conditions. A reversion toward the 20-day moving average (~123.50) within the band’s midpoint may occur before the next directional move. If the bands contract again, it could signal a consolidation phase, potentially leading to a breakout above 127.93 or a test of the lower band at 125.08.

Volume-Price Relationship

Trading volume has surged on the recent rally, with the August 13 session recording a 19.36 million share turnover, the highest in over a month. This volume validates the strength of the upward move, suggesting strong institutional participation. However, if volume declines during follow-through rallies, it could indicate waning momentum. The volume-price alignment supports the view that the current trend is robust, but traders should monitor for a volume spike during a pullback to confirm its sustainability.

Relative Strength Index (RSI)

The 14-day RSI stands at ~70, signaling overbought conditions. While this does not guarantee an immediate reversal, it highlights the risk of a correction. A drop below 60 would suggest weakening momentum, whereas a sustained move above 70 could indicate a strong continuation of the uptrend. Historically, RSI overbought levels have often preceded pullbacks of 5–10%, making this a key watchpoint for short-term traders.

Fibonacci Retracement

Applying Fibonacci levels to the 101.84–132.43 (October 28–March 27) uptrend, key retracement levels include 123.46 (38.2%), 117.01 (50%), and 110.58 (61.8%). The current price of 126.86 is above the 38.2% retracement level, suggesting that buyers are maintaining control. A breakdown below 123.46 could trigger a test of the 50% level at 117.01, aligning with recent support zones.

Backtest Hypothesis

The backtest strategy of entering long positions on MACD and KDJ golden crosses with a 10-day holding period yielded a 6.36% return but underperformed the benchmark by -44.33%. While the strategy’s low maximum drawdown (0.00%) and Sharpe ratio of 0.20 suggest minimal risk, its modest CAGR of 2.00% raises questions about its scalability in volatile markets. The confluence of MACD and KDJ signals (as observed on August 13) historically improves the probability of success, but the recent overbought RSI and Fibonacci resistance at 127.93–132.43 imply that tightening stop-loss levels or shorter holding periods may enhance risk-adjusted returns.