BABA Analysis

Alibaba Group Holding Ltd. (BABA)

11 a.m. New York time

Elliott wave analysis updated. I’ve updated the Elliott wave analysis with a paragraph on the internals of wave 5 {-2}. Also, I’ve updated the chart.

10:40 a.m. New York time

What’s happening now? BABA rose sharply, with an opening gap, in this morning’s trading.

What does it mean? Big picture, BABA has been in decline since October of last year and has fallen to a bit more than 20 points above the December 2018 low. On the chart, I’ve treated the subsequent decline as a correction within a long-term rise, for reasons discussed in the Elliott wave analysis section.

What’s the alternative? The decline could be understood as the beginning of a long-term downtrend. I’ve rejected that for reasons discussed in the Elliott wave analysis section.

The chart In the chart below I’ve added in a 6-day moving average, in red, to clarify the subwaves. The wave labels on the chart are relative to each other and don’t correlate with the Elliott wave-naming system.

[BABA at 11 a.m., daily bars]

What does Elliott wave theory say? The nature of the decline is revealed by the internal count within the three waves. If the count is 3-3-5, then it’s a correction. I read the chart as 3-3-5 and have labeled the subwaves. The count within wave B {-1} is a bit ambiguous, but under the Elliott wave rules, B waves tend to have three waves internally. So from that structure, I conclude that the decline that began October 27, 2020 is a correction within an uptrend and will be followed, eventually, with many ups and downs, by a rise to new heights.

Under my principal analysis, the rise from 2018 is still underway. The alternative would be to consider the October 2020 peak to be the end of the rise that began in 2018. For this to work, I would have to break the first wave of the decline into five subwaves. It’s possible most of the time, if I squint real hard, to make that work. In this chart, I think it’s an unlikely conclusion to draw from the evidence.

The question comes down to whether wave 5 {-2} is complete. Fifth waves tend to extend, and that might well be the case here. So there may be more downside ahead before the rise begins. The shortness of the 3rd wave within 5 {-2} is troubling, since under the rules of Elliott wave analysis, a 3rd wave cannot be the shortest wave within a trend. And indeed, wave 1 {-3} is 32.63 points long, and wave 3 {0-3} is 36.93 points long. So it’s a legitimate count within an extension, but just barely. I consider that to be a caution flag.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 24, 2021


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

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