Baidu ADR (BIDU) was downgraded Friday by theStreet.com's quantitative service. BIDU is trading to the upside this morning but a number of our go-to technical indicators are warning us to avoid the long side of BIDU. Let's drill down in the charts and indicators to see if these two approaches are keeping us with the right strategy.
In this daily bar chart of BIDU, below, we can see that prices have largely traded sideways the past twelve months. There have been upswings and downswings but traders would have had to be nimble to profit from the moves. BIDU is currently between the flat 200-day moving average line and the rising 50-day moving average line. Prices have been making higher lows from November to March to June but we haven't made a high above the May high to refresh the uptrend. Meanwhile, the On-Balance-Volume (OBV) line peaked in late April and made a lower high when prices made a higher high in May. This bearish divergence tells us that sellers were more aggressive in May with heavier trading volume experienced on days when BIDU closed lower. In the lower panel is the trend-following Moving Average Convergence Divergence (MACD) oscillator which is in bearish territory below the zero line. The MACD oscillator could generate a cover shorts buy signal depending on the price ahead in the days ahead, but for now it is bearish.
In this weekly bar chart of BIDU, below, going back three years, we can see that prices have traded sideways since late 2015 in a tighter and tighter trading range. Prices have crisscrossed the mostly flat 40-week moving average line. The trading volume has been neutral for the past twelve months and the weekly OBV line only shows a modest mark up from last July to now. The MACD oscillator on this weekly time frame has been hugging the zero line. All of this neutral looking price activity is not going to last forever and prices are likely to breakout out of this sideways pattern eventually.
In this Point and Figure chart of BIDU, below, we can see the sideways price action from a different perspective. A rally to $196.86 would be breakout out over the $193 high but strength above $200.72 would be more bullish and more impressive. Weakness below $169.84 is likely to precipitate further declines.
Bottom line -- BIDU looks weak overall and further downside probes area possible in the near-term. Traders should avoid the long side of BIDU for now. A close below $174 is likely to precipitate further price weakness.