Cash in this Gift from the Financial Media for Double-Digit Gains

Every so often, the financial press hands us a gift…

On Monday, I said you shouldn’t try to predict big market moves based on the “magazine cover indicator” — doing the opposite of what the mainstream media suggests are the big trends of the moment. Of course, real world’s a lot more complicated than that.

But sometimes…

Sometimes, the media hand you such a beautifully wrapped gift, laid out on such a bright, shiny platter, that you just can’t refuse it.

So today, it’s time for us to unwrap a gift from our pals over at Barron’s. Here’s the packaging:

Barron's

There you have it. Jack Ma’s grinning mug, along with the bold declaration that beleaguered Alibaba shares are poised to get chopped in half. This “gift” – and you’ll see why it’s such a gift in a second – was delivered to readers on September 14th. That’s after Alibaba shares had already endured a sharp drop of more than 40% from their November 2014 highs.

The article was scathing—basically taking a chainsaw to Alibaba’s growth projections. In fact, the story received so much play that Alibaba actually responded publically to defend its business model.

Now, when you see a big story like this show up, certain things happen…

First comes the inevitable panic selling as investors who’d been clutching Alibaba shares since the stock was over $100 begin to think all is lost. That usually washes out the last of the weak hands and speculators who poorly timed their trades.

Then the real fun begins. As the panic reaches fever pitch and there’s no one left to sell, you get the initial bounce off the lows.

And right on cue, Alibaba stock posted its lows right as the third quarter came to a close. No fund manager wanted to be chained to this stock heading into the end of the year.

That’s when the first signs of a bounce materialized…

An End to the Pain?

Yes, Alibaba was ridiculously overhyped when it debuted on the NYSE a little over a year ago. But that doesn’t change the fact that Alibaba remains the largest e-commerce company in the world.

“Just how big is Alibaba?” we asked last year. “Well, for starters, the company’s transactions totaled $248 billion in 2013 – and yes, that’s billion with a B.”

Analysts expected Alibaba stock to begin trading around $68 per share when it debuted last September. But on opening day, its initial price actually topped $92. And it came within 30 cents of cracking $100 before closing around $94. So much for those expert “estimates”. The hype train had left the station.

No fairy tale ending for Alibaba stock, though. Not yet, anyway. After ripping higher in its debut, it completely fell apart. Typical IPO hype—followed by a fantasy-crushing crash. China growth fears have multiplied as the clock struck midnight on this stock – or am I getting my fairy tales confused? Anyway, now, Alibaba is back to square one. And ripe for a powerful bounce…

We don’t need a fairy tale ending to get our gift. We don’t need it to ride a magic carpet back to $100.

We only need this stock to snap out of its tailspin and gain some positive momentum heading into the final trading months of the year. Even a quick move back to its early August levels would net you quick gains of about 15%. Not too shabby…

Barron’s is handing you a gift on a silver platter with their ultra-bearish stance on this beaten down stock.

Take it.

Sincerely,

Greg Guenthner
for The Daily Reckoning

P.SEvery so often, the financial press hands us a gift… If you want to cash in on the biggest profits this market has to offer, sign up for my Rude Awakening e-letter, right here. Stop missing out. Click here now to sign up for FREE.

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