BIDU Stock Is Primed for a Move Toward Higher Prices
I perceive the volatility index as a thermometer for the markets. When this index becomes elevated, I see it as the markets running a fever.
This feverish pitch is what caused the markets to swing in wild directions during the first quarter of the year. As we found out, elevated levels of volatility and the wild swings they produce have a tendency to push index values lower.
In recent weeks, volatility has subsided, which means the fever that the market was running has finally been broken. This is great news, because low volatility levels are conducive to a market that is geared toward higher index values.
This reduction in volatility has largely gone unnoticed because investor sentiment is still bearish. I believe this is about to change because a number of stocks are setting up to a make a move toward higher prices.
One name that has particularly caught my eye is Baidu Inc (ADR) (NASDAQ:BIDU). While the markets were in the grips of a correction in the first quarter, I spoke out about why I had the inclination to believe that BIDU stock was still poised for further gains.
I am returning to focus on Baidu stock because I believe that my views are about to get vindicated. These beliefs are centered around a number of technical indicators that have just been generated, implying that Baidu stock is primed for a move toward higher prices.
These indications are highlighted on the following BIDU stock chart.
Chart courtesy of StockCharts.com
This stock chart illustrates that, for the past seven months, Baidu stock has been trading within a range. This range was bound by price resistance, which resided at $270.00, and price support, which resided at $215.00. I used two trend lines to capture this trading range.
Using this trading range as a tool is quite easy, and the next sustained move in Baidu stock will be determined by whether the stock price can break above price resistance or fall below price support.
Breaking above resistance will imply that higher prices are likely to follow, while breaking below support will imply that lower prices are likely to follow.
I have always had the inclination to believe that price resistance was going to be broken. That view was just vindicated on May 11, when BIDU stock broke out above $270.00. This breakout is suggesting that BIDU stock is poised for further gains.
The ramifications of this break above resistance are being reinforced by the moving average convergence/divergence (MACD) indicator located in the lower panel of the above chart.
MACD is an influential momentum indicator that uses the crossing of a signal line in order to distinguish whether bullish or bearish momentum is influencing the price action in a stock.
Bullish momentum implies that a stock is geared toward higher prices, while bearish momentum implies that a stock is geared toward lower prices.
The most important aspect of this indicator is that a stock cannot sustain a directional move unless the applicable momentum is supporting it.
For example, while the trading range was in development, the MACD indicator was in bearish alignment. A bearish MACD signal implies that a stock is geared toward lower prices, which is why Baidu stock refrained from staging an advance.
This indicator illustrated its significance when there were two attempts at generating a bullish MACD cross and both attempts were quickly averted. These averted signals led to a violent sell-off in both respects.
I have been looking for a bullish MACD cross in order to support a move toward higher stock prices, and I finally got one during the week of May 7.
This bullish MACD cross has coincided with the completion of the trading range, strongly suggesting that BIDU stock is now likely to appreciate.
If you’re wondering why I have continued to believe that higher BIDU stock prices were still in development, the answer lies on the following monthly stock chart.
Chart courtesy of StockCharts.com
This Baidu stock chart illustrates the wave structure that has been responsible for creating a bullish trend.
This wave structure consists of impulse waves and consolidation waves.
Impulse waves are advancing in nature, and they capture the stage in a bullish trend when a stock sustains a move toward higher prices. Consolidation waves are corrective in nature, and they capture the stage in a bullish trend when the stock price corrects and refrains from advancing.
These waves have been working together, creating and sustaining a bullish trend that has taken BIDU stock from a low of $10.05 to where it currently stands, representing a very impressive 2,600% return in nine-and-a-half years.
The MACD indicator has an impeccable track record of confirming what type of wave is in development, and for good reason.
To reiterate, a stock cannot sustain a move toward higher or lower prices unless the applicable level of momentum is supporting it. This is why every bullish MACD cross has coincided with the development of an impulse wave, while every bearish MACD cross has coincided with the development of a consolidation wave.
Since June 2017, the MACD signal has been in bullish alignment, suggesting that an impulse wave has been in development. As a result, as long as this indicator remains in bullish alignment, I have to believe that higher prices are in development.
This notion has just been reaffirmed by the indications outlined on the previous BIDU stock chart. To conclude, I have to believe that it is only a matter of time until Baidu stock reaches and surpasses the $300.00 price point.
A multitude of technical indications have come together to suggest that BIDU stock is primed for a move toward higher prices. As long as these indications continue to suggest that higher prices are likely, I will maintain a bullish outlook on Baidu stock.