Have the Alibaba share price and Chinese stocks bottomed?

Shares in the Chinese stock markets such as Alibaba recorded incredible gains on Wednesday following news that the government would introduce a stimulus package, supporting the stock market, boosting economic growth, and hinting at an end to a restrictive regulatory environment.

In China, Alibaba stock had its biggest one-day gain since 2014, rising by around 37%, with it soaring by more than 20% in U.S. trading.

Chinese regulatory risks, US disclosure requirements and Beijing's alliance with Russia, all posed a threat to the delisting of Chinese companies and have contributed to investors selling stocks such as Alibaba and its peers.

Does Alibaba’s eye-watering bullish reversal have legs?

The US NYSE’s Alibaba sharp rally in its share price has taken it from its $72.24 low on Tuesday to this week’s high at $106.21, close to the December to January lows at $108.76 to $110.41 which are expected to cap when first reached.

At present a retracement back below the minor psychological $100.00 mark is being witnessed.

Given the strength of this week’s bullish reversal and the fact that Wednesday’s bullish candle enveloped six previously negative candles points to further strength being seen in the near future.

The 55-day simple moving average (SMA) and six-month downtrend line at $115.54 to $116.30 represent the first upside target and the $129.39 February high the next higher one.

Further potential upside targets are seen between the 2020 to 2022 downtrend line and the January high at $134.00 to $138.60.

One should see the current strong rally in the Alibaba share price within the context of its approximately 75% decline from its $319.27 October 2020 high to this week’s $72.24 low, though.

Has the China A50 index bottomed?

Considering that the China A50’s decline by some 40% from peak to trough since its high a year ago can be subdivided by five clear Elliott waves, the odds favour at the very least a three wave ABC correction to the upside taking shape.

For this to be the case, a rise above this week’s high at 13,992 would need to be seen and ideally an advance above the 200-week simple moving average (SMA) at 14,278.

Just as the Alibaba stock, the China A50’s Bullish Engulfing pattern on the daily candlestick chart encompassed six previous daily candles. This is a strong bullish signal.

What is needed now, is for this week’s peak at 13,992 to be exceeded. In this case the odds would favour a continued advance to the 14,535 to 14,539 resistance zone. It is comprised of the January low and the four-month downtrend line.

Medium-term a rise all the way back to the one-year downtrend and 200-day SMA at 15,505 to 15,550 could also be on the cards, provided that this week’s trough at 12,271 isn’t being slipped through.

Minor support above it comes in around the 9 March low at 13,002.

Has the Hang Seng formed a major bullish trend reversal?

The Hang Seng’s sharp drop by around -25% from its February high at 25,113 ended at Tuesday’s 18,132 low on news that China may provide an economic stimulus package to help its economy as it suffers from the spread of Covid-19 and countrywide lockdowns.

This low was made marginally above key support at 18,083 to 18,003, consisting of the 2012 and 2016 lows, and has been followed by a rally of over 15% in the past few days.

The decisive break through the two-month downtrend line at around 20,000, which now represents support with the 9 March low at 20,101, has the 55-day SMA at 23,286 in its sights.

On the way there, however, resistance may be encountered at the 22,708 January low.