Alibaba Stock Could Enjoy a Bigger Bounce

Shares of Alibaba Group Holding Ltd (NYSE:BABA) have shed roughly 20 points since hitting an all-time high of $191.75 on Nov. 22, last seen trading at $171.83. The stock is up 1.4% and there's reason to believe an even bigger bounce is on the way, given BABA's position on the charts. For instance, the equity's 14-day Relative Strength Index (RSI) settled at just 32 yesterday, right above oversold territory, suggesting a relief rally could be coming.

Plus, Alibaba recently bottomed in the familiar $164-$166 area. This region has offered strong support since August, and is home to a 23.6% Fibonacci retracement of the stock's 2016 low and high. Assuming the tech sell-off doesn't get reignited, it could be a good time to consider a short-term play on BABA given this potential technical floor. However, a U.S. appeals court just overturned a dismissal of a lawsuit accusing the company of misleading investors ahead of its initial public offer (IPO).

It would also help if short sellers keep covering their positions. In the two most recent reporting periods, short interest on Alibaba stock fell by almost 10%. Going by average daily volumes, it'd take these bears six days to cover.

Meanwhile, options traders have remained bullish, with 2.47 calls bought to open for every put over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). But not only is call open interest now at an annual high, so is total options open interest.

In today's trading, calls are nearly doubling puts once again. There are new positions being opened at the weekly 12/8 175-strike call, which expires on Friday. Those buying to open positions are betting on BABA shares jumping back atop $175, and those selling to open positions expect the security to hold below the strike.