He continued, "shares of Alibaba on Tuesday dropped to new all-time lows as they broke below the October 2014 lows. Investor and trader sentiment, as a result, has also reached new lows in the stock, which may exactly be where the opportunity lie."
Herd Mentality
He continued to explicate that traders move in herds, stating that "some of the best opportunities tend to set up when everyone is leaning in the same direction. What's important for such a non-consensus trade to play out profitably is confirmation by price, i.e. not jumping the gun and prematurely leaning against the herd.
"After a swift, post-IPO rally last autumn, shares of Alibaba topped in dramatic fashion last November. The price action since has been decidedly one-directional – to the downside. Yes, the slide could really turn into an avalanche and flush out all the remaining bulls, but (pause)."
Related Link: Alibaba: Short-Term Bear, Long-Term Bull
A Closer Look At Contrarian Investing
Berger then explained a bit more about contrarian investing: "Below obvious support areas is where the masses of the bears get active and short or sell stock, and taking the other side of that can often enough lead to big gains for traders willing to take a stand.
"From a technical perspective, there thus was an increasing likelihood that Tuesday's faltering of BABA stock below all-too-obvious horizontal support around the $84 area may soon see a bullish reversal that could severely squeeze the short sellers."
Berger concluded, "Sure enough, on Wednesday, investors initially pushed shares lower, only to quickly exhaust the bears and leading to a sharp intraday reversal. The bullish outside day/bullish reversal now offers bulls an opportunity to define their risk at the very latest at Wednesday's intraday lows."
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