BIDU Stock: Anxious Anticipation
There is a major move brewing in Baidu Inc (ADR) (NASDAQ:BIDU) stock, and I have been patiently sitting and waiting for a pattern to complete, which would suggest that such an outcome is going to occur.
My emotions have been mixed, because I have been flip-flopping on the direction that BIDU stock will take. I have been unable to decide which way this pattern will break, and every time a level of resistance or support is being tested, I get anxious with anticipation that a break is about to occur.
Baidu stock has served investors well, but its price has seen its share of volatility. In 2009, BIDU stock bottomed at $10.05, and it has returned an outstanding 1566% since that bottom. Only in the past two years has the price action really stalled, after Baidu stock hit a high of $251.99 in November 2014, and sunk to a subsequent low of $100.00 in August 2015.
These violent swings in the price have become smaller, and the volatility has subsided. This price action has caused a constructive pattern to develop on the BIDU stock chart, and this pattern can be used to develop an investment strategy around.
The following Baidu stock chart illustrates the pattern that has developed.
Chart courtesy of StockCharts.com
During the last 14 months, BIDU stock has been making higher lows and lower highs, and this price action has caused a symmetrical triangle to develop on the price chart. This pattern is illustrated by using two converging trend lines; one trend line represents support and the other trend line represents resistance.
When a symmetrical triangle is finally complete and a breakout occurs, the subsequent move in the price is quite powerful. The power from the pattern is a result of the price coiling into a small confined space. The price bounces from each respective level of resistance and support and, each time the price is rejected, momentum is being generated and stored for the eventual breakout.
This symmetrical triangle pattern is why I believe that a major move in Baidu stock is on the verge of happening. When the pattern completes and a breakout is confirmed, this will be a reason to take a side on the trade. The problem and the question that remains is this: which way will the pattern break, and when?
Perhaps the following longer-term trend in BIDU stock can help shed some light on this issue.
Chart courtesy of StockCharts.com
I have put a lot of emphasis on the lower panel of the BIDU stock chart. This oscillator is known as a moving average convergence/divergence (MACD) indicator. MACD is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish signals.
This indicator has an impeccable track record of identifying what type of wave is set to develop. Whenever a bullish MACD cross was generated, an impulse wave developed, and whenever a bearish MACD cross was generated, a consolidation wave developed.
Impulse waves are characterized by extended linear moves in the price. This move in the price is concluded when the price becomes extended, and internal indicators and oscillators have hit extremes. The consolidation wave that follows alleviates these extreme conditions, and it is instrumental in setting up the next impulse wave.
The MACD signal is currently converging, and a bullish cross is possible in the weeks ahead. I believe that if a bullish cross is going to develop, it will coincide with a bullish breakout of the symmetrical triangle. These two confirming signals would be enough to base an investment strategy around.
Bottom Line on BIDU Stock
One of these days, the symmetrical triangle that has developed on the Baidu stock chart will be broken via a breakout. A bullish breakout will be confirmed with a bullish MACD cross, and I believe that BIDU stock will pop under these conditions.