Alibaba: trading idea closing
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Forty Days of Madness on the South Korean Stock Market
The South Korean stock market posted an astonishing rise in the first half of the year, driven largely by the artificial intelligence-related semiconductor boom that benefited both Samsung and SK Hynix. As foreign investors became net sellers, the role of local retail investors has become increasingly prominent in recent times. However, the introduction of leveraged ETFs tracking a single stock further exacerbated the already mounting volatility in South Korea’s stock market. Following a sharp rally, a reversal occurred in mid-June, followed by a significant correction in July. In light of these developments, we examined what might happen next on the South Korean stock market.
The European defense industry could perform well
The European defense sector has come to the forefront in our momentum-based screening list. European companies that stand to benefit from rising defense spending remain the focus of investor attention. Based on our screening, two French companies—Dassault Aviation and Thales—have come into focus. As a manufacturer of Rafale fighter jets and Falcon business jets, Dassault Aviation is a key player in the global aviation industry, while Thales is one of the leading suppliers of defense electronics, radar, communications, and cybersecurity systems. The technical outlook for both stocks has been favorable recently, and significant opportunities may arise based on the technical patterns that have formed. As a result, it may be worth keeping an eye out for long entry opportunities in these stocks in the near future.
Alibaba's share price failed to maintain its breakout from weeks ago, reaching the stop level of our trading idea yesterday after the reversal. We therefore consider the position closed, which we attribute primarily to the underperformance of the technology sector rather than any change in the company's specific fundamentals. Therefore, although we are exiting our trading position, we are maintaining the stock on our equity top pick list due to its favorable long-term fundamentals.
The development of AI solutions (such as Anthropic's developments in recent times) has put software stocks under serious selling pressure, as in many cases artificial intelligence may call into question the business model of these companies, which could present them with structural challenges. The wave of selling had a negative impact on the entire technology sector, and in recent days, investors have responded to the quarterly flash reports of several large technology companies by reducing their positions, triggered either by higher-than-expected capex plans or growth figures that fell just short of expectations. The underlying reason may be that expectations were simply too high, while positioning became stretched, leading to corrections.
Relative price movements of Alibaba and its peers
We basically attribute the downward trend in the shares of Alibaba and several other Chinese competitors in recent days to this unfavorable industry environment, which ultimately caused our long trading position to reach its previously set stop-loss level. It is worth cutting losses here and stepping back until the general sector-wide selling pressure subsides.
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