I’ve been tracking Baidu Inc. ($BIDU), the Google of China, for a couple months now. I wanted to record my thoughts and analysis.
BIDU is a fantastic opportunity to leverage the Chinese consumer and their rising middle class, while controlling for the negative byproducts of their macroeconomic growing pains (shift away from fixed investment/exports toward consumption).
My short term technical analysis of BIDU butts-heads with a lot of traders out there, like Options Addict over at iBankCoin, who’s immediately bullish on the name, pairing short term long calls with a long position on the underlying stock.
Here are my chronological technical notes:
7/16- daily falling wedge breakout w $118 target (50% fib resistance), part of LT bull flag (target $166).
7/25- 2q13 EPS & Rev beat (1.22 v 1.21 & 1.23 v 1.20B), shs gap up +10% at open: online marketing rev +38.3% ($1.228B).
7/26- wait to buy, rather miss the trade than have it fill down gap: LT bull flag breaking out (ST falling wedge); weekly 2x bull divergence; monthly bullish.
8/23- expect pullback & buying opportunity: daily potential C&H keeps testing rim @ $143 w ST 2x bear divergence, breakout will fill gap >144.5; weekly LT bull flag still primary pattern; monthly indicators bullish.
As you can glean from the notes above, BIDU’s primary pattern is a weekly long term bull flag that’s already started rallying after April’s lows. In the shorter term, BIDU has formed a 30-minute Head & Shoulders top with a $134 neckline and 3x bear divergence. Neckline support held the right shoulder’s first attempt to pass southward, now a 1x bull reversal would materialize if BIDU trades up next week, saving the stock from a correction.
That H&S peaked at the $143 rim of a daily long term Cup & Handle. Thus, the charts weave a narrative that suggests BIDU will break down below it H&S neckline to form the handle of its maturing C&H. There’s weak 1st support at $125, but I’ll start buying at $120 all the way down to $113. These entry points are 38.2% and 50% Fibonacci retracement levels, which straddle the gap up from 2q earnings.
The weekly fractal is overbought too, supporting this notion of a short term pullback. Of course, the overarching constructions are bullish, with that aforementioned weekly long term bull flag and bullish monthly indicators:
If BIDU plays out as envisioned, I’ll enter the position. If not, I won’t have an edge, and I’ll have to reassess.
I’m loathe to add net exposures right now, since we remain overweight risk and there’s the looming potential for geopolitics to deliver an exogenous shock—a known-unknown (Grey Swan). Allocation is 66/28/6% (stocks/bonds/cash) vs 60/40 benchmark; beta is around 0.91 vs 0.76 benchmark; sigma 1.08 vs 0.49 benchmark.
We’ve been sitting on a General Electric ($GE) position that’s done nothing but pay dividends since April. I plan on selling GE to free up cash, which I’ll likely allocate into BIDU. We might do some other sell/buy/add shuffling, but I’m waiting for entry points on the Europe ETF ($FEZ), Brazil ETF ($EWZ), Standard Motor Products ($SMP), and WestJet Airlines ($WJA.TO). Similarly, I’m also waiting to add to the Japan ETF ($DXJ).