Alibaba could break out if US-China trade talks progress: Analyst

Thawing trade tensions between the U.S. and China could benefit one Chinese stock the most — Alibaba, says TradingAnalysis.com founder Todd Gordon.

“After the IPO [in 2014], we came down into a double bottom right around the $70 region,” Gordon said Thursday on CNBC’s “Trading Nation, ” referring to lows in late 2015 and early 2016.

From that point, the shares of the e-commerce giant broke out into an upward channel that stretched all the way to a peak in early 2018. From its all-time low in September 2015 to early 2018, the stock had soared 260%.

“Since then, heading into 2018 and 2019, much like the overall market, we’ve seen a lot of sideways consolidation, and I would say despite everything that’s happened in China with the Chinese slowdown and the trade war, it has held in relatively well,” Gordon said.

The chart is now forming a triangle pattern made from higher lows since a December bottom and lower highs, he said, which reflects consolidation and a sense of investor indecision.

“At some point, a group — either the bulls or bears — will step in and blow this consolidation out. Usually what happens is the trend that was in place prior to the consolidation will emerge victorious,” said Gordon.

Gordon is targeting a breakout to $180, which should pave the way for a move to $190. That higher target is 10% upside from current levels.

To take advantage of a move higher, Gordon is putting on a call debit spread by buying a 180 call with Oct. 18 expiration and selling a 190 call. This spread pays off if it expires with Alibaba capturing gains as high as $190.

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