Baidu Inc (ADR) (NASDAQ:BIDU), the Chinese Internet search company, had been under scrutiny by investors all year until the stock washed out in late August along with the broader stock market.
Since then, the stock has rallied back more than 40% in a near vertical fashion, taking out all areas of technical resistance and squeezing short sellers to no end. As a result, BIDU stock has now assumed a much more constructive posture again through the medium-term lens — one that active investors could look to take advantage of on the long side.
When Baidu reported its latest quarterly results on Oct. 29, it came in with better-than-expected numbers. While profit fell nearly 30% as a result of rising costs, both the top- and bottom-line results beat analyst expectations.
The company is not dissimilar to Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) in that it is not just an Internet search engine but also expanded into other areas such as internet security, healthcare management and many internet-commerce-related services.
BIDU stock for years has been a trader favorite as the underlying growth story coupled with the marginally worse transparency and thus mystery around the company (the case in most Chinese Internet stocks) led to plenty of volatility, yet in a technically sound manner.
BIDU Stock Charts
Looking at BIDU stock through a multiyear lens, we see that in the bigger picture, the summer 2015 waterfall selloff simply mean-reverted the stock back to its multiyear uptrend line. Giddy traders and investors essentially chased the stock so much that it got too far removed from the longer-term trend line, and as gravity ultimately began to kick in (as it always does), it washed out all the weak hands in Baidu. The August low was thus filled with emotions, and with few to no sellers left there was only one direction for the stock to go — up.
The steep rally since has brought the stock back up to its red diagonal resistance line from the late 2014 highs, where the stock now faces some resistance, at least from this angle.
In a great example of how important multi-time-frame analysis is, if we look at the daily chart, we see that the bigger picture diagonal resistance line has in fact already been overcome and that the stock has been consolidating above its red 200-day moving average.
The last time BIDU stock traded above its 200-day moving average was in April. From here, the longer the stock consolidates above this moving average, the better.
Active investors and traders could look to buy the stock upon a push and hold above $201, which then could open further upside initially toward $215 to $220.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, TheEssence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
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