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.)