BIDU Stock: Vindicating My Bullish View
Baidu Inc (ADR) (NASDAQ:BIDU) stock surged on Friday July 28, by 9.45% following an earnings report where the company crushed estimates, beating on both on the top and bottom lines. I am pretty confident that these numbers will cause a few analysts to second guess their bearish outlooks on Baidu stock. I, on the other hand, have been bullish on BIDU stock for quite some time, and this surge in price was actually something I have been expecting.
I cannot even begin to count the number of publications where I outlined a technical price pattern that was in development and the implications that were suggested by it. On May 29, 2017, I outlined in a report titled “The Sky Is the Limit as Baidu Stock Finally Breaks Out” that this technical price pattern was finally complete, and as a result, higher stock prices were expected to follow.
This bullish view was also being supported by a significant internal indicator that was reinforcing the view that a stock price advance was set to commence. To my dismay, the reaction that followed was muted as the share price continued to trade sideways. There was still a missing catalyst that was needed to send the share pries soaring. Chinese internet stocks led by Alibaba Group Holding Ltd (NYSE:BABA) were exploding to the upside, which gave me hope that a bullish move was still in the making.
The surge that followed the earnings report was actually was a sigh of relief because I was starting to question whether the bullish implications suggested by the BIDU stock chart were ever going to play out.
These bullish implications are illustrated on the following Baidu stock chart.
Chart courtesy of StockCharts.com
This stock chart illustrates that every advance and decline in BIDU stock since 2009 has been constructive in nature and supported by an internal indicator.
Constructive price action consists of impulse waves and consolidation waves. Impulse waves define the period in a bullish trend where the stock price stages an advance that is characterized by a swift and linear motion. Consolidation waves define the period in a bullish trend where the gains from the previous price advance are digested. This wave serves to unwind any overbought conditions that were created in order to generate the necessary conditions so a new impulse wave can develop.
These waves are highlighted on the BIDU stock chart; the impulse waves are highlighted in green and the consolidation waves are highlighted in purple. These waves in an alternating wave structure provide the essential building blocks to create a sustainable trend, a sustainable trend that has been in development for nine years.
This bullish trend has been supported by the moving average convergence/divergence (MACD) indicator. MACD is used to distinguish between bullish and bearish momentum. Bullish momentum is required in order to stage an advance, while bearish momentum is required to stage a decline.
Every bullish MACD cross has resulted in a price advance that has been highlighted as an impulse wave, while every bearish MACD cross has resulted in a decline that has been highlighted as a consolidation wave. In my previous publication on BIDU stock, I outlined that a bullish cross was generated, and therefore, I have been anticipating the development of an impulse wave. The price action on the stock chart clearly illustrates that every new impulse wave has surpassed the heights reached by the previous one, and I do not believe that this impulse wave will be any different.
This impulse wave has been especially explosive, which was also an expected development. These expectations are a result of the shape that the consolidation wave has taken, which is highlighted on the following Baidu stock chart.
Chart courtesy of StockCharts.com
This Baidu stock chart illustrates the consolidation wave that was just completed. This consolidation wave took the form of a symmetrical triangle, and these patterns are particularly powerful.
The reason why these patterns are so powerful is because as the pattern develops, momentum is being built and stored within it. This is a direct result of the price action, which contains lower highs and higher lows. This price action is defined using two converging trend lines that serve as levels of price support and price resistance. When one of these levels is breached, the momentum that has been stored within the pattern is released and a powerful and violent reaction follows.
The surge following the earnings announcement is a great example of the powerful and violent reaction that this pattern was alluding to, and one which I have been waiting for.
Bottom Line on Baidu Stock
A new impulse wave is now in development, which is supported by an underlying indicator on the Baidu stock chart. Previous impulse waves have gone on to forge new all-time highs, and I have no reason to believe that this impulse wave will be any different. As a result, my bullish view on BIDU stock has finally been vindicated, and I am excited to see what follows.