Baidu Stock Is All Set to Forge a New All-Time High

Baidu Stock
Credit:iStock.com/denphumi

BIDU Stock: This Is Why Baidu Is Geared Towards Higher Stock Prices

On May 26 of this year, I became bullish on Baidu Inc (ADR) (NASDAQ: BIDU) stock when a number of indications that were generated on its stock chart suggested that a bullish view was warranted. I had been watching Baidu stock for a number of years, waiting for these indications to swing into bullish alignment. The reason why I was watching and waiting is that the BIDU stock chart is among the best textbook examples of an investment that perfectly abides by the rules set out by technical analysis.

As soon as the necessary indications were generated, suggesting that a bullish view was warranted, BIDU stock became a top pick.

The bullish premise is well supported because the Chinese Internet stocks continue to show their valor as they continue outperforming. The reason why I am focusing on this investment once again is that a picture has been painted on the stock chart, suggesting that the stock price is setting up to make a move.

Before I outline the price action that initiated this update, I will go over the price action and influential indicator that originally brought about my bullish view on Baidu stock.

The following BIDU stock chart using a monthly scale illustrates the indications that were responsible for generating my bullish view on this investment.

Baidu Stock Chart

Chart courtesy of StockCharts.com

This stock chart illustrates that in the aftermath of the financial crisis, every progressive movement in Baidu stock has been constructive in nature and supported by an influential internal indicator.

Constructive price action consists of impulse waves and consolidation waves. Impulse waves, which are highlighted in green, define the period in a bullish trend where the stock price stages an advance. This wave is characterized by a swift and linear push towards higher prices. Consolidation waves, which are highlighted in purple, define the period in a bullish trend where the gains from the previous impulse wave are digested. This wave serves to alleviate any overbought conditions that were created in order to create the necessary conditions for a new impulse wave to develop.

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These waves in an alternating wave structure provide the essential building blocks to create and sustain a trend. These building blocks have now sustained this current trend for roughly nine years.

This progressive move towards higher stock prices has been supported by the influential moving average convergence/divergence (MACD) indicator. MACD is a trend-following momentum indicator that is used to distinguish between bullish and bearish momentum. Momentum creates the necessary fuel to stage an advance and/or a decline, so it’s wise to pay attention to which way this indicator is aligned.

This indicator has had an impeccable track record of confirming the type of wave that is in development. History has proven that whenever a bullish MACD cross was generated, it correctly implied that an impulse wave was set to develop, and whenever a bearish MACD cross was generated, it correctly implied that a consolidation wave was set to develop.

The bullish constructive price action and the bullish MACD cross are the reasons why I am bullish on Baidu stock and believe higher stock prices are on the horizon.

The price action on the following BIDU stock chart illustrates the recent developments that are supporting the notion of higher stock prices.

Baidu Stock Price Chart

Chart courtesy of StockCharts.com

The price action on this stock chart is similar to the one that preceded it, except that this stock chart uses a daily scale, which captures intermediate-term moves. This price chart focuses on the surge in price that occurred shortly after the indications that supported my bullish view were generated.

The surge in price has been constructive in nature, and this impressive impulse wave has transitioned into a consolidation wave. Just like the indications that were generated on the monthly stock chart, the MACD indicator in the lower panel has effectively identified when an impulse wave is in development and when a consolidation wave is in development.

A consolidation wave is currently in development and the price action is suggesting that this wave is now nearing completion. The MACD indicator is converging and a bullish MACD cross would confirm the notion that an advancing impulse wave is in development.

This impulse wave will almost certainly put in the required leg work that is needed to forge a new all-time high for Baidu stock, which I am anticipating is on the horizon.

Analyst Take:

 I am bullish on Baidu stock because key indications suggest that this is the only view that is worth holding. As a result, I will continue to hold a bullish view on BIDU stock until there are indications that imply that another view is worth holding. The recent price action reinforces the bullish view because it suggests that another move towards higher prices is in the making.