China has been all the rage lately and emerging markets have been hot in general. But China's search giant Baidu (BIDU) has not done much. It got me wondering if the stock has become to "Americanized." Baidu shares are getting a little kick this morning along with the broader market, but I still have concerns with its chart.
First, it doesn't scream short, but it does advise you to look twice before buying. Friday, the stock held important support just above $200 and that's a good thing for bulls. This line looks to be a big one thus far in 2015. We did see a short break of $202 in October 2014 when $195 held as secondary support, so that's definitely a number to keep in mind if it fails to hold. The main pattern that has my focus is this combination of the parabolic stop and reverse, the Relative Strength Index and slow stochastics. The RSI is below 50 and struggling. The slow stochastics also saw a bearish crossover right when Baidu hit the double price resistance lines, one ascending and the longer term descending. Combine this with the pattern in the parabolic stop and reverse and I have concerns.
The specific parabolic stop and reverse (PSAR) pattern is the one I refer to as "rising risk." It is a pattern where a short-term PSAR triggers bearish followed the next day by a longer-term PSAR triggering bearish. This creates an isolated rising channel around a candle. Alone it is a flag, but when combined with the other indicators like the RSI and slow stochastics, it brings a warning.
As far as the "Americanization" of Baidu, the correlation with the PowerShares QQQ Trust (QQQ) based on a 10-day moving average is consistent but not always correlated. There are very clear dips in the correlation every few months. As you lengthen the time, you'll find the correlation drop more and more away from the QQQ. In fact, if you get out to 50 days, you'll find it move to zero or negative for very long periods.
In the short term, BIDU can move with the market, but overall, this has not become "Americanized," so we can drop that concern from the price action. If that is indeed the case, then I am a bit worried as to why BIDU is an underperforming China name. If it can get back above $220, bulls will be back in the chart, but a bounce into $215 might make for a good put-buying opportunity, especially as a hedge against long-term positions, as long as risk is contained to $5 to $6. This means a trader is willing to limit risk to about 3% while looking for upside of 7% to 10%, both of which, are clearly defined on the chart.