After only ten trading days, a surge in the price of Alibaba Group Holding Ltd. shares turned what had been a lukewarm market into a sizzling one.
The Chinese internet conglomerate’s plan to slash its empire into six units has so far added $47 billion of market value. As a result, a key technical indicator flashed a sell signal — just a little more than a week after it showed the stock was oversold. This caused the market value of the company to increase.
Alibaba stock is overbought after $47 billion spinoff spike.
The 14-day relative strength index for Alibaba has increased beyond 70, which is often interpreted as an indication that a rally has been taken too far. After the announcement on Thursday that its logistics subsidiary had begun procedures for a Hong Kong listing, American shares have increased by more than 20% so far this week.
This is not the first time in 2018 that Alibaba’s stock price has surpassed the overbought mark. The relative-strength index first began indicating a sell signal on January 4, and it continued to remain over 70 for most of the month until the stock saw a decline.
The results indicated weak sales and anemic growth in the midst of China’s economic reform, which led investors to reduce their wagers in the e-commerce behemoth.
Yet, the recent increases in Alibaba’s share price have occurred while Wall Street is digesting spinoff plans that have the potential to unlock value in the company’s primary business segments, including e-commerce, media, and cloud computing.
Competitor JD.com Inc. followed suit on Thursday by announcing intentions to float two subsidiaries in Hong Kong, which also caused a strong jump in shares of the company’s stock.