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Stifel Says Buy the Dip on Alibaba Stock

Stifel added BABA to its 'select list'

Managing Editor
May 24, 2019 at 9:08 AM
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The shares of Alibaba Group Holding Ltd (NYSE:BABA) are up 1.8% in electronic trading this morning, after Stifel added the Chinese e-commerce concern to its "select list." The brokerage firm believes the stock's pullback due to trade war tensions presents a buying opportunity for long-term investors.

Since breaking into the $195 level to start the month, Alibaba stock has had quite the pullback, shedding 20% as of night's close at $156. The shares breached their 160-day moving average on Wednesday, and despite today's pop, are headed toward their third straight weekly loss of 4.5% or more. Plus, heading into today, the security's 14-day Relative Strength Index (RSI) stood at 28, in oversold territory.

Should a rally ensue, it could be sustained by a continued exodus of bearish bettors. Short interest fell by 1.9% in the most recent reporting period, yet the 109.02 million shares sold short represents a healthy 8% of BABA's total available float. At the stock's average pace of trading, it would take more than two weeks for traders to buy back their bearish bets.

There's also pessimism to be unwound in the options pits. The security's Schaeffer's put/call open interest ratio (SOIR) of 0.93 ranks in the elevated 74th annual percentile, meaning short-term speculators are much less call-skewed than usual. 

The good news for traders is that short-term BABA options are attractively priced at the moment, historically speaking. The security's Schaeffer's Volatility Index (SVI) of 33% ranks in the 23rd percentile of its 12-month range, meaning near-term contracts are pricing in relatively low volatility expectations.

 

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