Things can turnaround pretty dramatically in the market and hence a high level of vigilance is required all the time. There is a fascinating drama that seems to be unfolding on the Alibaba chart and there are some valuable lessons to be learned.
Everything was going great for Alibaba stock way back in October. What else do you want: Business Momentum with a great looking trending chart. Alibaba stock had nicely rallied from 200 to 300+ during June-October time frame with 50 dma as support.
If that’s not all, traders were excited about a mega IPO from Alibaba family in November
Chinese fintech ANT is valued at $330 billion…😲
This IPO is making lots of noise. The company owns Alipay, which facilitates mobile payment and has a financial services business with it [originating loans, selling mutual funds]
— Deepak Singh (@smarket) October 29, 2020
But then, things went south for the Alibaba family. A completely unexpected event happened – the Chinese Govt blocked Ant IPO
The price reaction was swift: Gap down but two factors kept the faith going: 1. Global bullish sentiment post Biden victory and 2. massive growth in Alibaba Single Sales day event
But was that an opportunity to buy. Nope if you follow price action mapped with fundamental events.
Just see what’s happening to the stock today
There is a very simple lesson one can learn: If a stock Gaps down on negative development/news flow, then pay attention to the news driving stock prices, rather than ignoring it
Fundamentals don’t drive stock prices.
How people perceive those fundamentals drive stock prices.
As a market participant/trader, keep an eye on how the market views the fundamentals than being obsessed with your own version of fundamentals. It means look at the price action and it tells you without bias what the market thinks about the stock. Once you read the price action, go and find the reason why the market has such a view on the stock, and be aligned with it.
This is the level one mind training every individual requires to be in sync with market thinking. This is the real fundamental of Investing. I call it Science of Stock Price Action
If price action fascinates you – then Science of Stock Price Action is a great place to start.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers