Technical Analysis: BIDU Stock Is Down, But Not Out

Baidu stock
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BIDU Stock

I am returning to focus on Baidu Inc (ADR) (NASDAQ:BIDU) stock because I feel the need to follow up on a report that was published on May 15, 2018, titled “This Is Why BIDU Stock Is Likely to Clear the $300.00 Threshold.” In this report, I outlined the technical indications that were supporting the notion that a move toward higher Baidu stock prices was likely in development.

Since that date, Baidu stock is down 10.26%, so I have some answering to do. For starters, the catalyst that sent the stock price lower was a corporate announcement that President Qi Lu was stepping down from the company. His influence on the new direction the company was heading in is why the announcement had such a pronounced effect, causing the BIDU stock price to sell off dramatically.

So here I am, returning once again to point out that, yes, Baidu stock may be down since my last report, but it is not out. The indications that were responsible for generating my bullish view in the first place are still in bullish alignment. That implies that Baidu can still regain its footing and stage a move toward higher stock prices.

These indications I am referring to are highlighted on the following BIDU stock.

Chart courtesy of StockCharts.com

This stock chart illustrates that Baidu stock has been trading within a trading range, bound by price resistance at $270.00 and price support at $215.00.

This trading range has contained the stock price since October 2017, and the next sustained move in BIDU stock is predicated on the stock’s ability to either break above resistance or break below support.

On May 15, 2018, I outlined that Baidu stock was breaking out of the trading range and that a bullish moving average convergence/divergence (MACD) signal was supporting this move.

MACD is a momentum indicator that distinguishes whether bullish or bearish momentum is influencing the price action in a stock. Bearish momentum implies that a stock is likely to depreciate, which is why when a bearish cross was generated in November 2017, the stock price corrected. Bullish momentum implies that a stock is likely to appreciate, which is why when a bullish MACD cross was generated in the first week of May 2018, I had to believe that higher prices were likely to prevail.

The candlesticks highlighted on the stock chart use a weekly scale, so during the week of May 15, it seemed as though Baidu stock was breaking out. But the announcement that the company’s president was stepping down came on a Friday, and it ended up thwarting that breakout.

The good news is that MACD signal is still in bullish alignment, suggesting that there is nothing stopping BIDU stock from regaining its footing and staging a move toward higher prices.

You might be wondering why I am so content about maintaining a bullish view. Well, that answer is quite simple, and it is based on the indications highlighted on the following Baidu stock chart.

Chart courtesy of StockCharts.com

The premise that has caused me to retain a bullish view on Baidu stock is based on the wave structure and the MACD indicator, which are highlighted on this stock chart.

This wave structure, which consists of impulse waves and consolidation waves, has been responsible for sustaining a bullish trend in this stock.

The waves highlighted in green are impulse waves. These waves are advancing in nature and they capture the period in a bullish trend when the stock price stages a sustained move toward higher prices.

The waves highlighted in purple are consolidation waves. These waves are corrective in nature, and they capture the period in a bullish trend when the stock price corrects and refrains from advancing.

These waves work together, and when one wave is complete, the next wave follows.

In early May 2017, BIDU stock exited the consolidation wave, which completed it, and an impulse wave has been in development ever since. This notion is being supported by the MACD indicator.

I think it is fair to assume, based on the previous MACD signals, that as long as this indicator remains in bullish alignment, an impulse wave is still in development. That is why I believe and continue to push the notion that higher prices are likely to prevail.

Analyst Take

Baidu stock has seen a setback in its price following a corporate announcement that its president has stepped down. This setback has resulted in lower prices but it has not negated the bullish technical signals, suggesting that higher price are still likely. As long as these indications remain in bullish alignment, I can only assume that BIDU stock is likely to find its footing at current prices and that higher prices will prevail.