BIDU Stock: Ready for Launch
Baidu Inc. (ADR) (NASDAQ:BIDU) stock surged to $11.28 on September 6. This represented a gain of 6.34% and it came on heavy volume on this first trading day after the Labor Day long weekend. Kids went back to school on this day and traders got back to doing what they do best. So it is no surprise that volume surged on the first day, but the surge in Baidu stock may have caught some off guard.
For those not familiar with BIDU stock, Baidu is the search-engine equivalent of Google (NASDAQ:GOOG) in China. Since I like Google as an investment based on its search engine, I am surely going to love Baidu stock because the consumer base in China dwarfs that of any other market.
I could go on about the fundamental reasons why I like BIDU stock, but that is not my focus. I am a believer that the price of a stock and its trend are an effective way to understand whether the company fundamentals are indeed sound. Essentially, if the chart looks good and the trend is higher, then other investors have already done the fundamental work for me. Fundamentals are the main driver of a price trend.
The following chart illustrates key developments in BIDU stock.
Chart courtesy of StockCharts.com
There are two noteworthy items on the Baidu stock chart that need to be discussed: the price pattern and the moving average convergence divergence (MACD) momentum indicator.
The price 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 similar to a spiral pattern.
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 grows thinner, and it is only a matter of time before one camp prevails. The losing camp exits and covers its position; that event helps fuel the move in the share price.
On the above chart, you will notice the lower-panel label “MACD.” MACD is a simple and effective trend-following momentum indicator. Signal line crossings are used to distinguish between bullish and bearish signals.
The MACD signal on the chart above is lining up to cross and the histogram is about to move into positive territory. A bullish momentum cross will coincide with a bullish breakout of the symmetrical triangle, and a surge in price is quite possible.
The following BIDU stock chart illustrates previous bullish MACD crosses.
Chart courtesy of StockCharts.com
The chart above illustrates the importance of the MACD signal line as an indicator. A monthly scale was used to create this chart. Longer-term charts help isolate longer-term trends. The result is a smoother trend that is less disturbed by noise that is found on shorter-term time scales.
The main sticking point of the chart above is the impulse waves that are produced following a bullish MACD cross. This signal has a tendency to produce impulse waves that last for many months and offer substantial returns. This signal has yet to terminate without producing a new all-time high in BIDU stock.
The Bottom Line on BIDU Stock
There is an opportunity presenting itself in BIDU stock. The chart pattern and MACD are setting up for a potential bullish “buy” signal. If this scenario plays out, it would be very bullish. Previous MACD signals produced similar results, and I see no reason why this correlation should not continue for Baidu stock.