Alibaba and Tencent are at a make-or-break level, charts suggest

Chinese stocks are getting burned as trade fears grip Wall Street once again.

The BATS stocks – Baidu, Alibaba, Tencent and Sina – have dropped this week as investors temper expectations ahead of U.S.-China trade talks Thursday and Friday. The group also came under pressure Tuesday on reports the Trump administration was weighing blocking government pension funds from investing in China.

Matt Maley, equity strategist at Miller Tabak, said the charts are now flashing warning signals for the group.

“Two of them, in particular, are at key levels here and they need to bounce very soon,” Maley said Tuesday on CNBC’s “Trading Nation.” “The first one is Alibaba. Here’s a stock that’s facing what’s called a symmetrical triangle pattern and it’s right at the bottom end of that pattern.”

Maley said if Alibaba breaks below the lower end of that triangle formation – at around $162 – it could kick off an even larger decline for the stock. Alibaba ended Tuesday’s session just underneath that level.

“The other one is Tencent. That’s another triangle pattern but this one is a descending triangle pattern and that’s trading right at the bottom line of that one, so if it breaks below that, again, that’s going to be another very negative development,” Maley said.

Progress on trade talks this week will determine whether Alibaba and Tencent can hold above those levels or crack beneath them, he said.

“If we don’t get something good [by] this weekend and if we only get something minor or kick the can down the road and these two stocks break below those patterns, it’s going to be quite bearish and the downside could be a lot more than a lot of people think,” Maley said.

Quint Tatro, president of Joule Financial, said the unpredictability of the negotiations makes trading these stocks an impossible task.

“Even though they don’t have this export risk, they’re still at risk and so I think investors who are trying to game a bottom here have to recognize that all they’re doing is gambling, they’re not investing,” Tatro said during the same segment.

For anyone invested in these Chinese stocks, Tatro added that this could be the nudge needed to unwind their positions.

“If you find yourself trapped in a name like this, just I think becoming frozen is the worst thing you can do, I would look to sell some, throw some into the fire here and then if we do get some sort of oversold bounce, I think you can take the rest off,” he said.

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