I'm stalking Baidu (BIDU) for a buy entry. The larger pattern of this stock is a bullish one of higher highs and higher lows, as long as price continues to hold above the Oct. 15 low.
Price is also above both the key 200 and 50 simple moving averages, which suggests setting up the buy side is the way to go as we've had this healthy correction since the Nov. 13 high.
There are three Fibonacci price clusters to keep an eye on in this stock. A price cluster is the coincidence of at least three Fibonacci price relationships that come together within a relatively tight range. The first one we are currently testing at the $226.20-$228.29 area. This zone included a 0.786 retracement of one swing, a 100% projection of a prior decline along with a 1.272 and 1.618 extension of a couple of prior swings.
Below here, if the recent low does not hold up, I will also watch for possible support at $221.26-$224.31 and below that, at $214.89-$216.34. Although I know I want to look at entering the buy side, what I do not know is which, if any, of these zones will definitely hold. So this is why I'm going to wait for what I like to call a trigger, to tell me that it's worth placing a bet against the support zone. A trigger is essentially the price action on a lower timeframe chart that indicates a reversal against the zone.
For example, if a stock is making a pattern of lower lows and lower highs on the 30-minute chart into a support zone, I want to see a shift to a pattern of higher highs and lows, along with a moving average crossover, on that same 30-minute chart. I like to use the 8/34 EMA combination for my trigger, although there are other combinations that might work just as well. So far we are just short of triggering a buy entry for a swing trade if you use a 30-minute chart.
If you are more aggressive, you could already be in on the buy side off a 15-minute chart entry. Just keep in mind that if you use the more aggressive entry chart (15-minute), you will tend to be stopped out of trades a bit more often. For more information on using these trade setups with triggers, please refer to my prior article.
Another reason I'm interested in the buy side of BIDU is that there are timing parameters coming in at the same time we are testing this key support. I see a nice cluster of cycles between Dec. 3-5, illustrated on the chart below. There are also a couple more coming due around Dec. 10-11.
So with time and price coming together, that actually increases the odds for a trade playing out as long as a trigger is seen. So let's stalk BIDU for an entry on the buy side in these next few sessions and see what unfolds.
If all of the supports I'm considering are taken out, I will back off the buy side until further notice. If the trade starts to play out, my initial target will be around that $254 handle.