BIDU Stock Is Hanging on to Its Bull Market by a Thread

BIDU Stock Is Hanging on to Its Bull Market by a Thread
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BIDU Stock: Support Must Hold or Much Lower Prices Are Likely to Follow

For those who do not follow my work on a regular basis, let me reiterate where I stand on this market. I believe that the selling pressure that has recently inundated the markets has done its share of technical damage.

As a result of this technical damage, my outlook for the stock markets has been tarnished, and I no longer believe that the market is poised for further gains. Instead, I believe that the markets are beginning a transition from a bullish trend into a bearish one.

These types of transitions are characterized by wild market swings and elevated levels of volatility. In essence, this price action captures a battle that is being waged between bullish and bearish investors. For the last nine years, the bulls have come out on top, and now it seems likely that this outcome is subject to change.

I am focusing on Baidu Inc (NASDAQ:BIDU) stock because I fear that it is among many of the stocks now in danger of transitioning from their current bullish trend into a bearish one. My fears regarding BIDU stock, specifically, stem from a number of technical signals that have been or are in danger of being generated.

For instance, BIDU stock is currently testing a very important and extremely significant level of price support. This level of price support is captured on the following Baidu stock chart.

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Chart courtesy of StockCharts.com

This Baidu stock chart captures a metric known as an uptrend line.

An uptrend line is a simple technical tool that is created when significant lows in a bullish trend are connected using a trend line.

Uptrend lines are used to pinpoint where significant levels of price support reside. As long as a stock is trading above an uptrend line, one can only assume that higher stock prices are likely to prevail, because a bull market is still in development. This is why uptrend lines also act as dividing lines that separate a stock’s current bullish trend from a potentially bearish one.

As you can see from the chart above, BIDU stock is currently testing its uptrend line.

This level of price support suggested by the uptrend line is extremely important because it is the last thread of support holding together a bullish trend that began in 2006. Breaking below it would confirm my fears that the bullish trend in Baidu stock, which has been in development for the better part of 12 years, has finally come to a conclusion.

Aside from the current markets conditions, my fear that price support may fail is because a very influential momentum indicator is currently suggesting that Baidu stock is geared toward lower prices.

This momentum indicator I am referring to is captured on the following Baidu stock chart.

Chart courtesy of StockCharts.com

This BIDU stock chart focuses on the moving average convergence/divergence indicator, or MACD for short.

MACD is a technical indicator that functions to distinguish whether bullish or bearish momentum is influencing the price action in a stock. When the signal lines that create this indicator swing into bullish alignment, it suggests that the stock is geared toward higher prices. When the signal lines swing into bearish alignment, it suggests that the stock is geared toward lower prices.

As you can see on the BIDU stock chart above, this indicator has an impeccable track record of determining which way a stock is heading. Each bullish MACD signal was followed up by a move toward higher BIDU stock prices. Every bearish MACD signal was followed up by a move toward lower BIDU stock prices.

The most recent bearish MACD signal was generated in August. As suggested, lower Baidu stock prices have prevailed. These signals lasted from as little as 15 months to as long as 26 months.

The current bearish MACD signal was only generated three months ago, suggesting that further downside pressure is likely. This is what is stoking my fears that support may fall.

I changed the scale on the chart above to a linear-based scale in order to illustrate that support suggested by the log-based scale coincides with support suggested by the linear-based scale. Both these scales suggest that price support currently resides at $178.50, which is why this price point is extremely significant as the bull market in Baidu stock hangs in the balance.

Analyst Take

The market environment is not great, and I am fearful that Baidu stock is in danger of concluding its bull market that began almost 13 years ago. BIDU stock is currently testing an extremely important level of price support that resides at $178.80. Breaking below it would confirm my fears that its bullish trend has come to an end.