At December’s Level 4 seminar, our founder William O’Neil shared his thoughts on the market and individual stocks, including Alibaba (BABA), which was one of the most talked about stocks in the market at the time. Alibaba’s $25 billion IPO last September is still is the world’s largest IPO. The stock had an amazing run as it broke out of a 17% deep IPO base at $99.70 and advanced 20% to $120 in just three weeks.

 

When O’Neil was asked about BABA, he pulled up its chart on the big screen and proceeded to go through the chart as if he had never seen it before. One thing he pointed out was the weakness in the fundamentals. “Earnings are decelerating from 60 to 15 percent and we’re supposed to be growing? I’m not so sure about that.” This is what the chart looked like at the time of the seminar 12/7/2014:


 

 

At a time when media attention on BABA was fairly positive, the reactions in the crowd ranged from surprised to skeptical. But since Bill’s analysis, the stock has dropped 20%. Here is the chart of BABA on 1/29/2015:


 

 

The biggest take away from his analysis is to be objective, systematic, and emotionless when it comes to stock selection. When we get too caught up in “The Name,” we expose our portfolios to undue risk and potentially massive losses. Investors should approach every chart as if they have never seen it before. A good exercise: cover up the name of the chart, and be as objective as possible in your analysis.

 

If you have any further questions about stock selection or analysis, please reach us at (800) 424-9033 or reachus@marketsmith.com.

 

 

Best returns,

 

George Orlando, MarketSmith Team