A 7.1% slump on Monday, the worst in more than three months, wiped out $22.7-billion in the tech giant’s market value. The losses are set to grow as Alibaba shares extend declines into Tuesday, trimming the month’s gain to about 25% – still more than double the rebound for the benchmark Hang Seng Index.   

Some market participants are fretting about whether Alibaba’s earnings can recover at the pace that’s been priced in. That may undermine the gains, which were fueled by bullish reports from brokers including Citigroup and Goldman Sachs Group earlier this month citing further earnings upside for China’s internet sector given the reopening and easing regulatory clampdown. 

“Some investors are getting cautious after such a sharp rally, and they are waiting for data on a fundamental recovery, including earnings and business guidance,” said Banny Lam, head of research at Ceb International. “The stock will remain volatile in the near term.”

Hangzhou-based Alibaba’s gains in January were more than almost any other company in the Hang Seng as it extended its rally from an October low to 75%. It hasn’t been alone in riding on the bullish wave, with Tencent Holdings Ltd. and NetEase also showing indications of being overbought. 

Alibaba’s 12-month forward earnings forecast has been revised down about 4% since mid-December, data compiled by Bloomberg show.

The stock’s put-to-call ratio has been rebounding in Hong Kong this month, a sign that investors are buying more protection against any stock declines. Alibaba shares have been technically overbought for about three weeks before Monday’s slide, Bloomberg data based on 14-day RSI show. BM/DM