What happens when your competitor stops competing? Let’s look at Baidu (BIDU). (April 08, 2015)
I want to look at Baidu ( NASDAQ:BIDU ) today and here’s why: if you look at the weekly chart you can see this stock has basically been rolling over. If it falls below, lets say 200.00 or so, then I would have to look at this as a head and shoulder reversal pattern, which would not make me very happy.
Here’s how this thing works: we’ve got the left shoulder, it’s a higher high, then we’ve got a low, then we’ve got a higher high still, then we have a low. This is not really moving up yet, it’s not doing that, it’s just kind of drifting sideways. Now if it were to move up and then fall back down, there’s your head and shoulder pattern and it’s a big reversal, bearish signal for Baidu ( NASDAQ:BIDU ).
I’m not really thinking that that’s not going to happen though and this is why: first of all just keep an eye on this level here. So we’ll go back to the daily chart and you can see the stock has just been kind of drifting down to find support right around 200.00ish. I would say 200.00, not to the penny because that’s just not how stocks trade but about 200.00 is support for this stock right now, going back to here; so this is a really solid level.
At the same time this stock is right at the 50-day moving average and right at the 200-day moving average, so it’s like the average cost basis of short-term traders is just right around this level. Also you’ve got to look at this, kind of a big capitulation low, right there. Huge sell off, massive volume, downward spike, and then, boom! The stocks up, not big but now down, it is indeed up.
And so we’ve got strong support here and then we’ve got a fundamental thing happening and that is China decided they didn’t want Google ( NASDAQ:GOOGL ) in there any more. So that means Baidu’s ( NASDAQ:BIDU ) ad revenue is going to go up quite a bit, that was really the news that accompanied this big move up. It’s been here before without that kind of news so every move is just a move looking for an explanation as opposed to the other way around.
So here’s my suggestion, over at Option Market Mentor actually I put on a bull put spread selling the 210.00 puts, buying the 205.00’s, though you could buy the 200.00 puts to make a little bit of money between now and expiration, which is a week from Friday. The following week is when the company announces earnings so there’s no earnings risk or any big risk there.
So my suggestion is if you’re an option trader go ahead and put on a bull put spread. But if you’re a stock trader look at this as a viable area of support; take some stock here, that’s 6 percent above where support is so you’re actually at a pretty good entry point. I think this stock is kind of done going down in part because of this development with Google ( NASDAQ:GOOGL ) out in China. So this is a trade that I hope works for you and lets just go ahead and make that together.
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