Alibaba’s stock dropped for six consecutive days, losing over 8% on Friday, following President Trump’s threats of increased tariffs on China. The NASDAQ fell over 2.2% due to fears of renewed trade tensions, particularly after China’s potential export limits on rare earth metals.

In recent months, Alibaba experienced success, including a partnership with the NBA’s China unit to develop AI products. The company’s Qwen series of AI large language models and a $53 billion investment in AI infrastructure had boosted its stock performance. Additionally, Alibaba’s Amap product now boasts 360 million daily users.

Technical Analysis

Alibaba’s stock was heavily overbought according to its Relative Strength Index before the sell-off. The stock had gained about 86% from July to early October due to AI developments and Jack Ma’s return. After slipping below the 23.6% Fibonacci retracement level, Alibaba found support at the 38.2% level.

There is potential for bulls to find an entry point if the stock remains above this level. However, risks remain if trade tensions continue. The stock may also test the 78.6% Fibonacci level, aligned with the 200-day Simple Moving Average, if conditions warrant. Traders should watch for new trade developments impacting stock momentum.

Looking back at last week’s sharp sell-off, we saw BABA stock find solid footing right around that $158 level after the President’s tariff threats. That support has held for several days, suggesting the initial panic has subsided. This stability offers a new entry point for those of us who were waiting on the sidelines.

The options market is now showing renewed confidence, with a noticeable 15% jump in open interest for November 2025 call options at the $175 and $180 strikes just this week. This suggests traders are positioning for a rebound rather than a further slide. Implied volatility has also come down from its peak during the Friday scare, making options slightly cheaper.

Trade and Investment Strategy

While the tariff threat hasn’t gone away, we’ve seen little follow-through action from the White House. September trade data released this past Wednesday showed only a minor dip in imports from China, suggesting the worst-case scenario isn’t being priced in by the broader goods market yet. Historically, we saw similar patterns in the 2018-2019 trade war, where initial threats led to dips that were often bought back before actual policies were enacted.

The stock’s ability to hold the 38.2% Fibonacci level after being so overbought shows underlying strength. Positive early reports on the NBA China AI integration this week further support the fundamental story that drove the summer rally. We should not forget that Alibaba’s cloud revenue grew by 4% year-over-year in the most recent quarter, a sign of momentum in its core tech segments.

Given this stabilization, we see an opportunity to sell weekly puts below the $155 strike to collect premium, capitalizing on the established support. For those more bullish, buying call spreads for December 2025 could be a way to target a move back toward the $170s. This strategy would limit risk if US-China trade tensions were to suddenly escalate again.

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