ALIBABA GROUP HOLDING LTD (FOREIGN)

153.06 -2.72 (-1.78%) Buy

BABA investors herd to book profits while the going is good

13 min read

ALIBABA GROUP HOLDING LTD (Foreign) significantly underperformed on Friday. It lost -1.78% to close at 153.06. On a day when the overall market breadth was 35%, it closed higher than 15% of the market. In comparison, the benchmark SP500 index closed today at -0.0233%.

[Themes containing BABA]

Buy-and-Hold investors in BABA experienced a maximum drawdown of -19.81% over the last three months. It lost -2.11% during this down trending period. There were both Long and Short signals during this period, where the short signals were significantly more profitable than the long signals. The net profit from Short signals was +2.47%.

Trend

BABA has been outperforming the SP500 index in recent time. Over the last 2 years 11 months and 3 days, BABA outperformed the SP500 index on 51% days.

BABA returned losses on 53% days in the last three months. During this time, it delivered on average 0.0% per day. It delivered it's worst daily return of -6.64%, during this period, on Monday, 29 Oct, 2018. There was initially a bearish trend during this period which started on 4 Oct, 2018 and went on till 10 Oct, 2018. The trend delivered -15.73% losses to investors. This was followed by a bullish trend that started on 21 Nov, 2018 and ended on 28 Nov, 2018. This bullish trend delivered +8.88% to investors.

BABA had 5 profitable and 7 loss making months over the last year. During the last year, BABA underperformed SP500 index on monthly return basis. BABA significantly outperformed SP500 index in Nov 2018, when it returned +13.06% compared to +4.75% returned by SP500 index during it's best month in the last one year - Jan 2018. BABA had a longer winning streak of losing months than SP500 index. It went down in 3 straight months (from Aug 2018 to Oct 2018) during which period it delivered -24.56%. It is interesting to note that both BABA and SP500 index significantly outperform during months when quarterly/annual results are announced.

Too many people spend money they earned..to buy things they don't want..to impress people that they don't like.
-- Will Rogers

BABA is becoming less volatile overall. In comparison, the SP500 index is seeing a rise in volatility. During the last three months, there was a significant surge in BABA's volatility from 28 Sep, 2018 to 2 Nov, 2018. While there was a significant surge in the SP500 index's volatility from 10 Sep, 2018 to 29 Oct, 2018.

Advanced/professional short-term investors should note that BABA has negative skewness in it's return distribution. This indicates that investors may need to stay invested through long periods of drawdown before expecting a recovery.

Investors trading in BABA derivatives at this moment can consider 'Protective Collar' options strategy to receive better risk-adjusted returns.

BABA has more chance of extreme outcomes than the SP500 index. Therefore, BABA must receive a lower allocation than SP500 in your portfolio. SP500 index usually has shorter drawdown period than BABA.

On a general note (since you are interested in BABA), three mid cap instruments that deserve special mention are AMD, ABMD and SQ. They have all outperformed the market and must be closely watched for investment opportunities.

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