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I began posting messages on this board before BIDU broke out of its trading range near the $200 level. I predicted that breakout, and since then I have correctly called BIDU's day-to-day price movements every step of the way. After BIDU spiked on October 11th and plunged ten percent, I accurately predicted that BIDU would form a second major spike. At times when no one dared to say that BIDU was going higher, I did, and each time I gave a detailed technical argument in support of my opinion.
I took a lot of criticism and teasing along the way, but we made it to $350 on October 11th and survived a gut-wrenching 60-point sell off. Those who missed that incredible run got a second chance when BIDU, as I predicted, formed a second spike.
On Friday, BIDU defied gravity and hovered over the $400 mark. Optimistic analysts achieved the near-term price target that they were hoping for. Analysts often set near-term goals that exceed what they realistically expect.
I have been watching BIDU's trading action looking for signs of an insurmountable technical problem. At Friday's 12-point opening gap I noticed that a candlestick Evening Star (similar to a star at the top of a Christmas tree) had formed over BIDU's recent 100-point vertical spike. But it wasn't until midafternoon Friday that I saw the type of climactic panic buying that is characteristic of the final day of an overextended vertical run.
There was short-covering Friday afternoon to be sure. But I don't believe that short-covering accounted for all of the buying. At the top of a sharp 100-point spike, short-sellers had less reason to sell Friday afternoon than on preceding days. And yet there was a frenzy of buying leading into the closing bell.
There is a certain type of buyer who appears in the final hours of an extended vertical advance when prices have reached their peak. These are the ultimate bag holders. For complicated psychological reasons, they are programmed to be in the wrong place at the wrong time. Through their eyes, the advance is not ending but just beginning. If they don't get into the building they will be left out. Panic buying typically sets in on the final day of a steep advance. It manifests as a bidding war that drives the closing price to the highest point of the day.
Day traders have a motto: close your positions before the end of the day. They weren't the ones buying Friday afternoon. And the institutions have been selling all week into strength. The churning and distribution of shares has been obvious. That leaves the usual suspects holding the bag. They appeared right on schedule, fighting each other at the closing bell trying to get inside the building. That was an obvious sell signal for me. A climax of panic buying at the end of a vertical 100-point rise is extremely bearish. It creates an insurmountable technical hurdle. Panic buyers are not the type of people you want to share company with in a crowded building.
Sentiment among some BIDU shareholders has taken on a sacrilegious fervor, a sense that BIDU is invincible, unstoppable and more powerful than God. We've all read those posts. The references to God are revolting.
The sense that BIDU is invincible is a mindset that contains the seeds of its own destruction. Stocks, in order to survive over the long run, need to correct their excesses on a periodic basis. Stocks that get ridiculously ahead of themselves can crash so badly and cause so much damage to sentiment that they never recover.
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This was a trememdously insightful post, and well worth the read and consideration. I posted earlier that you were right on with your analysis. Thanks.
I am curious about another Chinese stock in a similar market, and one that's frequently compared to BIDU, and that's SOHU. While much smaller, SOHU experienced a rather explosive rally about 2 weeks ago, just ahead of earnings, blasting from the lower 40s to now in the mid 60s, and setting a record high last Friday. It seems to me that this new level - nearly 50% higher than pre-earnings - is overbought, and a correction is in the offing near-term.
GrateWll: What BIDU chart are you looking at? Are you looking at BIDU on Yahoo's beta charts? Yahoo's one-year charts are compressed vertically to fit into their format and don't provide a good perspective. Other online charts do a better job.
Try this link to an online BIDU chart:
You saw what happened on October 11th when BIDU plunged eighteen percent from $359 to $294. An analyst warning sent a stock that surged 100 points in ten-days to drop sharply in one day and give up its gains. Note how the stock
climbed back in a few days forming the shank and waist
pattern of a bullish doji.
You saw what happened on October 11th when BIDU plunged eighteen percent from $359 to $294. An overblown $300 stock that surges 100 points in ten-days can drop sharply in one day and give up its gains.
BIDU hasn't seen a really sharp one-day run up in the last several trading sessions. Not even today. In fact, the pace of trading today has been steady and gradual, not at all characteristic of a final blowoff top.
Looking at the charts, BIDU's rise since it broke out of it's trading range near $322 has been at a moderate pace. It looks like a steady, orderly accumulation. This suggests that BIDU could go even higher next week.
I can tolerate most the antics and language on this board, but when you impersonate my user name you've crossed the line with me. That's a Terms of Service violation Yahoo will no doubt enforce. After clicking on the "abuse" link and submitting a complaint, the follow through procedure consists of mailing or faxing copies of posted messages and a handwritten complaint to Yahoo's main headquarters. I will be doing that Monday by FAX during business hours.
To Yahles1711: I wish I had the answer to that. I think that everyone realizes, whether they will admit it or not, that BIDU's current 100-point vertical spike is greatly overextended. It's as if you're in a dream and somehow ended up on top of a 100-foot flag pole. From there, where is the bottom? The nearest price support is at the base of the spike at the $300 level. In terms of moving averages, the 50-day moving average is at $209. And the 200-day moving average is at $176.
This 52-week BIDU chart illustrates the point:
The Longs want BIDU to continue going up vertically without a meaningful correction, but trees don't grow to the sky. If you throw a ball into the air it's going to go up only so far and then drop. The Longs are in a mindset that thinks that there can be only one successful outcome to investing or trading BIDU shares. They imagine BIDU in terms of a "Jack and the Beanstalk" fantasy. The beanstalk, BIDU, grows to the sky, and in a castle in the clouds is a hen that lays golden eggs.
One of the biggest mistakes a trader can make is to get into a stubborn mindset. In that regard, one of the most foolish mindsets that a trader can get into is one that is based on psychological opposition to, or verbal conflict with, other traders. Stubbornly digging in your heels and remaining polarized when evidence indicates that the trend has reached a critical turning point can result in big loses.
Ever since October 11th when BIDU plunged 18 percent, I have been predicting - and my posts bear this out - that BIDU will form a top pattern consisting of not just one, but at least two, and as many as three or four spikes. Because BIDU is such an unusually overextended stock, the width of the trading range - that is, the distance between spike peaks and support levels - and also the volatility (of movement reversals) is likely to be extreme.
The first spike on October 11th was the left shoulder. Right now BIDU is at the top of the middle spike in a trading range.
Traders need to be good wave surfers. Know how to spot a head and shoulders pattern in the stock you're trading. Look for the left shoulder, then see where you're at. Lock in your profits while you can. Timing is critical when you are in a volatile trading range and the stock is overextended.
I respect the analysis you have put in this stock and the fact you don't attack people personally.
I too have been following it since it's inception. I have been in and out of it and made money. I agree with a lot of your points in general.
I'm long and holding this stock now and keep resetting my stop loss higher almost daily. I do this because I too know this thing could crash big time at any moment. If the market just decides not be in to internet services of GOOG, YHOO, BIDU etc., then this stocks in big trouble.
My opinion is this thing has the potential to go anywhere from approximately 1200 to 2800 price. This is my opinion FOR NOW. I consider this to be a reasonable expectation (1200 certainly being more likely) based on all the exhuberance, healthy and/or otherwise for this sector.
Why? I basically believe this because whatever GOOG does by way of price, BIDU will do the same IF BIDU continues to grow similarly. This stock and GOOG, to my way of thinking is basically the perfect marriage of a retail stock and a tech stock. Combined with the fact this stock is easier to understand than most other stocks. You don't have to be some kind of engineer to understand it like with oil. It has a low float which will drive it higher.
BIDU will go up 100 at least(to about 453) after this recent quarter's positive ER, faster than the last 100 after the last report off market expectations in my opinion. Look at the proportion of Jan08 call options to puts and the difference in volume between the highest # of options, 207 @ 480 strike vs the next highest at 570 strike, volume 72. Maybe I'm reading this wrong, and I certainly don't know the intent of the people who bought these things, but it seems to indicate this thing is going much higher, FOR NOW. And if/when it gets there I expect a crash.
I don't put too much stock in tech analysis. But I believe it is important.
But I'll be the first to admit, this thing could crash for real and permanently at anytime for reasons we may never know. And if that happens, I'll may start shorting it.
Thank you, Sir, for your kind words. Allow me to gently present a critical view.
The effect of a positive earnings report on a stock's price movement can vary widely depending upon the activity of the stock prior to the announcement. A stock may have rallied and fully discounted a positive earnings report by the time the report is released. That's why so many stocks sell off on their earnings date. There's an old adage among traders: "Buy on the rumor, sell on the news."
In anticipation of positive earnings, BIDU broke out of it's post mini-crash trading range on October 23rd, three days prior to the release of the earnings report. Earnings were released Thursday before last late in the evening. By then, BIDU had surged 30 to 45 points.
A multi-day vertical runup is measured from the low end of share price support to the top end of the range, not from an arbitrary point somewhere along the way.
Following the 65-point mini-crash on October 11th, BIDU found support at $294 and consolidated in a trading range that had it's base at $305. BIDU's 100-point vertical spike is measured from the $305 base to the tip of the spike at $409.
Stop loss orders are no protection when the price suddenly breaks and there are no buyers. A flood of market sell orders can wipe out bids in an instant.