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Baidu, Like Alibaba Stock, Is Falling Into Value Territory

Chris Tyler

Blame the reaction in Baidu (NASDAQ:BIDU) on what you will. But following earnings BIDU stock is looking closer to being parked near value off and on the price chart than a car wreck with no survivors. Let me explain.

Will Autonomous Cars Make Baidu Stock Self-Driving?

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Similar to how Alibaba (NYSE:BABA) is often regarded as China’s answer to Amazon (NASDAQ:AMZN), Baidu has long been likened to Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). And for good reason. The company’s dominance in internet search market and BIDU stock’s increasingly diverse web of ancillary technology-driven ventures make for a solid comparison.

But on the heels of a poorly received quarterly confessional, the buck stops there for BIDU stock bulls. Late last week, Baidu reported its first quarterly loss in 14 years as a publicly traded company. Making matters worse, the earnings whiff was also below a well-prepped Street’s forecast.

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Much of the blame behind Baidu’s quarterly loss is tied to Baidu’s aggressive investment in autonomous driving and so far, what has proven to be a costly expansion of the company’s growing ecosystem. But there is good news in plain sight after BIDU stock fell 25% in two trading sessions.

The overlooked upside to Baidu’s report and Wall Street’s reaction are that revenues did increase by 15% from the year-ago period while also topping analyst views. Further, with BIDU stock now sporting a historically cheap valuation and shares parked near deep value territory on the price chart, there’s good reason for bullish investors to be optimistic rather than mournful.

BIDU Stock Monthly Chart

Not that the writing was entirely on the wall. However, there have been strong technical clues for more than a couple months, if not more, that something was not right with BIDU stock prior to last week’s earnings-driven fallout.

From the monthly perspective, some technicians could point to Baidu’s choppy attempt and ultimate failure at all-time-highs last year as a possible first clue of trouble ahead. I wish my own observations had led to that conclusion. Nevertheless, BIDU stock’s breakdown of technical support in mid-2018 and continued relative weakness led to a bearish flag pattern stationed in layers of bearish resistance.

And the markets haven’t helped. Look at all the red in the past few weeks, thanks to trade war headlines. Alibaba stock is down over 12% in the last month, compared to 30% losses for BIDU stock. But remember that Alibaba’s earnings were more positive.

BIDU Stock Trade

Personally, I won’t call a bottom in BIDU stock — not here or now, at least. The monthly stochastics are oversold and shares are near a test of the 62% support dating back to the financial crisis. That’s the good news. But it’s not enough to consider buying shares right now.

The problem with calling a low is Baidu has also just broken a couple key trend-lines, stochastics is actually crossing bearishly down and 2015’s key low at $100 isn’t so far removed from current prices as to think a test isn’t in the cards.

Allowing for volatile wiggle room, BIDU stock has the area from $95-$115 to find a supportive intermediate low to turn shares higher. In the interim though and until conditions begin to also firm up on the weekly chart, BIDU stock is a solid name to put on the radar for future buying opportunities.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

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