Fake news: Ali $BABA trades

All news is fake news, even real news.

Fake news: Ali $BABA trades

There's two kinds of fake news I like the most:
1. "Good" news about scam companies
2. "Bad" news about legit companies

Ali Baba is a legit company. That's the extent of my fundamental analysis on this one. And it got hit with a series of "bad" news.

Hit piece 1: Anti-competitive practices

It's late 2020, and Ali Baba makes headlines for engaging in anti-competitive practices that resulted in a whopping fine. The sky is falling, according to several publications, and according to stock twitter.

According to some analyst blogs, this stock reaction was a huge overreaction, and the fine is a tiny percentage of their cash and earnings, and it doesn't affect the business moving forward. Now are these analysts right? Dunno. But even real news can be fake if the reaction is absurd.

This wasn't enough for me to jump in a trade with any conviction, but I had my eye on it. The stock had gone down a fair bit, and playing a recovery was tempting... but the thing about bad news getting popular, is that journos will inevitably find more bad news to spread in the coming days or weeks.

Hit piece 2: De-listing fears

Nobody wants their stock to get delisted from the stock exchange. Headlines everywhere claimed Ali Baba and Tencent were in danger of being delisted, as Trump and the Republican party were threatening to delist Chinese stocks. Those are the two most popular Chinese stocks - amazing those were the ones in headlines.

It didn't take much to see some flaws here:
- The Chinese companies at threat of being delisted were companies with ties to the Chinese military. This list included weapons manufacturers, CCTV companies, that kind of thing. But Ali Baba and Tencent had no relation, they were just the hot stocks that people care about. Journos are really great people.
- Secondly, it was late 2020, and the Republican party was not going to be around much longer. They had already been voted out, and were counting down the days in power. I felt that a change in power would kick Ali Baba's price back up.

However, I still didn't jump into this trade. I had better things to do, but it was getting juicier, and $BABAs price had continued to slide.

(Now, if you're reading this in 2021+ thinking, "the delisting fears are very real aren't they?" - well, now they are, because it's China threatening the delisting of all companies)

Hit piece 3: Jack Ma disappeared by the Chinese Communist Party

This was the cherry on the cake. Articles surfaced everywhere about how Jack Ma, the founder of Ali Baba, had been disappeared by the Chinese government.

Now is this real news, or fake news?

I mean, who knows, right. He probably was disappeared by the government. But why should that affect Ali Baba? Does a CEO really have that much bearing on the profits of a successful, well-established company?

Just kidding, he wasn't the CEO. Sure, Jack Ma was the founder. But he wasn't the CEO, Chairman, or even an employee, and hadn't been since he left Ali Baba years prior.

The stock tanked further on news of his disappearance, and this time I couldn't help but jump in for a swing trade.

I set a stop loss and set my price targets at some basic support and resistance lines on the daily chart that one could draw with their eye. Apparently technical analysis like this is akin to astrology, but I like having a simple guiding framework with which to place trades.

The thesis was simple: This might be real news, but it's still fake, and there can't be that much news left to keep beating the stock down. A recovery is in sight if Jack Ma appears again, or if people figure out he's not tied to the company.

The trade worked out. It took about a week. Jack Ma came back eventually, but I was out of the stock long before that happened.