BIDU Stock: A Resolution is Imminent
Baidu Inc (ADR) (NASDAQ:BIDU) stock has been referred to as the “Google of China,” and, while that may be true with regards to its search engine, Baidu is not Google (Alphabet Inc (NASDAQ:GOOG)).
This shouldn’t sway investors away from this name, because Baidu is the dominant search engine in China, and China has an enormous population that makes up its consumer base. There is a lot of growth in this part of the world, and the middle class has only begun to emerge. This class of workers will be the consumer base that drives and fuels China’s domestic growth. This growth will only serve to fuel BIDU stock.
I have been watching BIDU stock for some time, waiting for a trend to develop. BIDU stock has spent two years trading sideways within a range, and a resolution to this range will result in one of two possible outcomes. Baidu stock will either leap higher or sink lower. I am currently on the fence with this name, because I have little choice but to wait until the pattern resolves itself. There is evidence that can support both camps but, if I were to take a bullish bias, the price pattern and momentum indicator needs to confirm it.
In order to remain objective and disciplined, patience is warranted.
The following Baidu stock chart illustrates the signal I am waiting upon.
Chart courtesy of StockCharts.com
The main focus on the BIDU stock chart above is the indicator in the lower panel of the 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 confirming when BIDU stock has experienced extended periods of trending. MACD is a very powerful indicator and should never be ignored. This is an example of an indicator that I refuse to trade against. As a result, I am patiently waiting for this indicator to cross before I can truly be bullish on BIDU stock.
The MACD signal is currently converging, and a bullish cross is possible in the weeks ahead. The previous consolidation ranges lasted approximately two years, and this range is now entering that time frame.
The following Baidu stock chart illustrates the pattern I am waiting for.
Chart courtesy of StockCharts.com
The chart pattern I am referring to is a symmetrical triangle. A symmetrical triangle, by definition, is a consolidation pattern that contains two converging trend lines. One line represents resistance and the other represents support. Traders refer to triangles as a zone of indecision, as the prior move is digested. These patterns are particularly explosive because, as the pattern progresses, momentum gathers speed.
The thrust of the move is generated by bulls and bears fighting for a foothold. They are essentially building positions for their respective camps, as the trend progresses and the lines that separate them grow thinner. It is only a matter of time before one camp prevails. In most cases, these patterns break out in the direction of the prevailing trend.
The problem is that I cannot say for sure in which direction the prevailing trend is heading. I have illustrated the possibilities on the chart above, and both impulse legs highlighted in pink and green can be grounds for argument.
The only way to know for sure is to wait for a breakout. Triangles, on average, break out after at least five points of contact and when the triangle is 70% complete. Both of these characteristics have been fulfilled, and a breakout can occur at any moment. I am expecting some serious fireworks in Baidu stock when this pattern is finally resolved.
The Bottom Line on Baidu Stock
I am currently waiting for a pattern breakout to swing my bias on Baidu stock. At this juncture, I can only be neutral on BIDU stock. I am leaning toward the bullish camp, but I cannot commit to that position until the Baidu stock chart and the MACD signal confirm this bias.