After Looking Strong BIDU Begins Falling off a Cliff

Dec 22, 2009: 7:37 PM CST

If you’ve been trading or following Baidu (BID) lately, then you know how much price (and investors) have been on a roller coaster lately!  Let’s get a quick update on BIDU and view the recent recovery which is now being eroded in what could be shaping up to be the colorfully termed “Dead Cat Bounce” pattern.

I last covered Baidu in my prior update:  October 27 Weekly Chart Update and Elliott Count on BIDU.

Reference that post to see its longer term structure.

On disappointing earnings, Baidu fell from $440 to $350 per share in a stunning overnight drop.  The stock rallied through the first half of Novemer, recovering all of that decline and actually testing the waters above the prior resistance zone at a fresh new 2009 price high.

However, the new price high was short lived.

Price began forming a negative momentum divergence along with a classic “Rounded Reversal” pattern which is now playing out on the right side of the pattern – the decline.

I say “falling off a cliff” because BIDU broke the expected support levels of the 20 ($420) and 50 ($412) day exponential moving averages – common places to find support (and get long) on pullbacks in an uptrend.

We could be looking at a “Dead Cat Bounce,” which occurs after price falls suddenly, bounces back to recover part (though rarely – all) of the losses from the ‘shock’ impulse… and then price turns sideways and begins falling sharply again.

The last two days have been dominated by sellers as price pulled off of $420 and has now closed under the ’round number’ $400 level.

Keep watching this stock closely, as $400 will be the line in the sand – if we’re not already under the line in the sand at the daily moving averages – to determine whether or not price will keep falling in true “Dead Cat Bounce” fashion along with “Rounded Reversal,” or whether BIDU can use up another one of its nine-lives and rally to new highs.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

(My apology to cat lovers – I did not create the term “Dead Cat Bounce.”  The concept has been around for years.)

3 Comments

3 Responses to “After Looking Strong BIDU Begins Falling off a Cliff”

  1. pipercolt Says:

    But if you connect the bottom trendline, you could take a shot at a long here with a tight stop as long as it doesn't break.

  2. Bob Says:

    After what appears to have been a five wave expansion, the breaking of the 20 & 50 EMA is certianly a bearish development.

    At the moment, price may be near a level where it can find support. Go back to the mid-October gap down. Notice the retracement that occured into early November. The candle bodies reached $398 before a doji formed and a reversal occured. Key on this doji and look at other price swings that have inflected at this level; over time it has been a key level of support & resistence (In late September, a bull flag formed that found support at this level. The expansion rally that followed, retraced into support at this level). It should have an influence here too. Watch for a pause here and a possible retracement up into the converging 20 & 50 EMA as they roll over the top and suppress. Alternately, price could gap down from this level which would indicate a severe bearish tone.

    Other key price levels to watch to watch which are located just underneath include $384 (two gapps and a doji have formed at this level) and $370 (two major price retracements have found support at this level and the July rally topped there too).

    Merry Christmas All!

  3. Bob Says:

    After what appears to have been a five wave expansion, the breaking of the 20 & 50 EMA is certianly a bearish development.

    At the moment, price may be near a level where it can find support. Go back to the mid-October gap down. Notice the retracement that occured into early November. The candle bodies reached $398 before a doji formed and a reversal occured. Key on this doji and look at other price swings that have inflected at this level; over time it has been a key level of support & resistence (In late September, a bull flag formed that found support at this level. The expansion rally that followed, retraced into support at this level too). It should have an influence here too. Watch for a pause here and a possible retracement up into the converging 20 & 50 EMA as they roll over the top and suppress. Alternately, price could gap down from this level which would indicate a more severe and bearish tone.

    Other key price levels to watch, which are located just underneath, include $384 (two gaps and a doji have formed at this level) and $370 (two major price retracements have found support at this level and the July rally topped there too).

    Merry Christmas All!