Keeping a Close Eye on Baidu

 | Nov 23, 2012 | 8:30 AM EST
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If you look at a daily chart of Baidu (BIDU), you'll see it's not a pretty sight. The price is below both the 200-day and 50-day simple moving averages, and it is still flashing a sell signal on the five-day and 13-day exponential moving averages.

So why am I stalking this stock for a possible low? It has everything to do with time-frame work. If we back up and look at the big picture, we can identify quite a few stocks that look rather ugly on the daily and intraday charts -- though the weeklies can also give us a heads-up, as well as identify some rather important lows.

One can never be certain on these matters but, in this case, a few factors have added up to a case for stalking Baidu on the buy side. Also keep in mind that we'll be waiting for reversal indications before we step up to the plate here.

Baidu (BIDU) -- Daily
Source: Dynamic Trader

As far as the factors that currently suggest a possible low, the first is the fact that Baidu is reaching key price extensions on the downside. Many market moves tend to terminate at extensions of prior swings.

Second, we are looking at two standout price clusters of support -- $86.48 to $90.19 and $80.27 to $83.83 -- that suggest at least a possible bounce is in store. These price zones, illustrated on the chart below, include some 100% projections of prior declines.  When you compare swings in the same direction, you will find many that are similar to one other.

Baidu (BIDU) -- Weekly
Source: Dynamic Trader

Last but not least, I'm also seeing some Fibonacci timing parameters that suggest a low may be reached within the next couple of weeks. On the chart above, you can see the cycles that come in between Nov. 23 and Dec 7. One of the key timing factors is that the prior decline lasted 16 weeks -- and this next week will be 15th week down from the last major high. Many trend reversals occur when there is symmetry or similarity in timing with regard to prior swings.

So, in these next weeks, I will be watching Baidu for some buy triggers. If I see something that qualifies, I will post it on Columnist Conversation.

Happy holidays!

For more information about trades and triggers, please refer here.



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