BIDU Stock: Time Is Running Out
I have been patiently waiting for a particular price pattern on the Baidu Inc (ADR) (NASDAQ:BIDU) stock chart to finally resolve itself. A resolution to this price pattern would dictate which direction Baidu stock is heading in next. This price pattern is actually quite beautiful, and its implications are mind blowing. Once this price pattern is completed, I am expecting a substantially large move in BIDU stock. I have been waiting for the pattern to resolve itself since August of last year. Every day that the price is contained within this pattern, it is one day closer to a resolution, which I believe is now only moments away.
For anyone who hasn’t had the pleasure of indulging in any of my previous publications, I generate my views on a potential investment by analyzing indicators and price patterns that are made available on a company’s price chart. This method of investment analysis is known as technical analysis and it is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. This method provides great value when applying it to an investment strategy, so as a result, I have spent nearly two decades refining my skills in this method of analysis.
The following Baidu stock chart illustrates the technical price pattern that has been in development.
Chart courtesy of StockCharts.com
I am awaiting the resolution of the symmetrical triangle that is illustrated on the price chart above. This pattern contains two converging trend lines; one trend line represents support and the other trend line represents resistance. These trend lines define the price action, which contains lower highs and higher lows.
As this pattern progresses, the range between support and resistance continues to contract, and this confinement of space causes momentum to build within the pattern. This momentum will finally be released when price closes beyond either support or resistance. As a result, these patterns are known to produce especially powerful breakouts.
There is currently less than $20.00 separating support and resistance, and Baidu shares are currently trading in the middle of this range. A move representing a little over five percent in either direction will resolve this pattern. This tight range also means that time is running short, and a resolution to this pattern can be expected any day now. Based on the size and duration of this pattern, I am expecting an extremely powerful move to follow once this pattern is finally resolved.
The following BIDU stock chart illustrates that this technical price pattern is in the context of constructive bullish price action.
Chart courtesy of StockCharts.com
The Baidu stock chart above illustrates the constructive price action that has dominated the landscape since the conclusion of the financial crisis in 2009.
Bullish constructive price action consists of a two-wave structure made up of an impulse wave and a consolidation wave. The function of the impulse wave is to advance the price of the stock, while the function of the consolidation wave is to unwind any overbought conditions that were created during the advance, and more importantly, set up the next advancing impulse wave. This alternating wave structure creates the necessary building blocks to generate a sustainable trend.
The consolidation wave that is in development is the same symmetrical triangle that was highlighted on the first chart. In order for the bullish trend that began in 2009 to continue, this pattern needs to resolve itself in a bullish manner by exiting the pattern in an upward direction.
The moving average convergence/divergence (MACD) indicator located in the lower panel has been instrumental in identifying which one of the two waves is in development. MACD is a simple and effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum.
I have placed a lot of emphasis on this indicator, and for good reason. Whenever a bullish MACD cross was generated, an impulse wave developed, and whenever a bearish MACD cross was generated, a consolidation wave developed.
A bullish cross is now in the process of being generated. This indicator serves to suggest that bullish momentum is driving Baidu stock, and as a result, the path of least resistance is geared towards higher prices. This implies that the consolidation pattern/symmetrical triangle is set to resolve itself in a bullish manner.
Like I said earlier, I am waiting for a resolution, with the inclination that BIDU stock will exit this price pattern in upward direction. This would confirm that a new impulse wave is set to develop and new highs are likely to quickly follow.
Bottom Line on Baidu Stock
There is a powerful price pattern in development that, upon completion, will dictate the next direction Baidu stock will take. The indicators on the BIDU stock chart are in alignment to support a bullish advance, so as a result, my bias is tilted towards a bullish resolution.