Shares of Chinese internet search engine company Baidu Inc. (BIDU:xnas) have seen some wild swings over the past few months, which is not unusual for Chinese internet stocks. The recent rally has put the stock back into a more constructive posture through the medium-term lens, which is to say that a "buy-the-dip" or "breakouts" approach may again be warranted.
Looking at BIDU stock through the longer-term lens we quickly see that despite the sharp selling this summer, the long-term uptrend was not broken on a weekly closing basis.
What the drop off the 2014 highs did, however, was mean-revert the stock lower, shake out the weak hands and thus in this sense reset the charts.
The sharp rally over the past couple of months has now attacked and marginally overcome the diagonal line of resistance from the 2014 highs, which is a positive sign from this angle.
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Source: Saxo Bank
On the daily chart we see that the stock pushed back above its red 200 day-moving average a couple of weeks ago which at the time also coincided with the diagonal line of resistance. After some consolidation the stock on Wednesday rallied a couple of weeks ago and thus broke out of this multi-week consolidation phase.
Management and risk description
BIDU can be a volatile stock, which is to say that reduced size and wider stops would be prudent risk management for this trade.
Entry: buy the CFD at $202 or higher.
Target: $215 - $220.
Time horizon: two to six weeks.
— Edited by Michael McKenna
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Non-independent investment research disclaimer applies. Read more