Alibaba’s stock fell for six days in a row, dropping more than 8% on Friday. This decline came after President Trump threatened to raise tariffs on China. Meanwhile, the NASDAQ index also dropped over 2.2% due to concerns about renewed trade tensions, especially after China’s potential restrictions on rare earth metals. Recently, Alibaba had some successes, like a new partnership with the NBA’s China division to create AI products. Their Qwen series of AI language models and a huge $53 billion investment in AI infrastructure helped boost their stock. Moreover, Alibaba’s Amap service now has 360 million daily users.

Technical Analysis

Before the recent sell-off, Alibaba’s stock was highly overbought, according to its Relative Strength Index. The stock had risen about 86% from July to early October, thanks to advances in AI and the return of Jack Ma. After dropping below the 23.6% Fibonacci retracement level, the stock found support at the 38.2% level. Bulls might see an entry point if the stock stays above this level, though risks could persist if trade tensions escalate. If conditions change, the stock could test the 78.6% Fibonacci level, which aligns with the 200-day Simple Moving Average. Traders should keep an eye on any new trade news that could affect stock momentum. Looking back at last week’s steep sell-off, BABA stock found solid support around the $158 mark after the tariff threats. This support has held for several days, indicating that initial panic is easing. This stability could provide an entry point for those who were waiting. The options market shows renewed optimism, with a 15% increase in open interest for November 2025 call options at the $175 and $180 strikes just this week. This indicates that traders expect a rebound rather than a further drop. Implied volatility has decreased from its peak during Friday’s scare, making options prices lower.

Trade and Investment Strategy

Although the tariff threat remains, the White House hasn’t taken further action. September trade data, released Wednesday, showed only a slight decline in imports from China, suggesting that the worst-case scenario isn’t being factored into the larger goods market yet. We saw similar situations during the 2018-2019 trade war, where initial threats caused dips, but stocks recovered before actual policies were implemented. The stock’s ability to hold the 38.2% Fibonacci level after being overbought demonstrates its underlying strength. Positive early reports about the NBA China AI integration this week add to the fundamental factors that drove the summer rally. It’s also worth noting that Alibaba’s cloud revenue grew by 4% year-over-year in the last quarter, indicating momentum in its core tech segments. Given this stabilization, now is a good time to sell weekly puts below the $155 strike to earn premium from the established support. For those with a more bullish outlook, buying call spreads for December 2025 could target a return to the $170s. This strategy limits risk, especially if US-China trade tensions rise again. Create your live VT Markets account and start trading now.

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