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Say Baidu Of China

08/30/12 08:47:17 AM
by Koos van der Merwe

Do you want to invest in China? Here is a company worth looking at.

Security:   BIDU
Position:   Buy

Founded in 2000, Baidu is a Chinese language search platform that dominated the Chinese online ad market in 2007. Over 150,000 small and midsized Chinese enterprises, large domestic corporations, and Chinese divisions or subsidiaries of large multinational corporations have benefited from Baidu's online search marketing services. The company listed itself on the NASDAQ market in August 2005, and the price has risen from a low of $4.50 in February 2006 to its present price of $115.52. With China starting to experience a lack of confidence for investors, is Baidu worth a buy?

FIGURE 1: BAIDU, MONTHLY. Here's a monthly chart showing an Elliott wave count.
Graphic provided by: AdvancedGET.
Figure 1 is a weekly chart showing an Elliott wave count of Baidu from its listing date in August 2005. The count is suggesting that the price has completed a wave 4 correction and is now in a wave 5 move up with a target of $194.87. The probability index (PTI) is suggesting a 32% probability that this will occur; 32% is the lowest limit acceptable by the index, in that anything below this level casts doubt on the Elliott wave forecast. This is emphasized by the relative strength index (RSI), which is still trending down and has not given a buy signal.

Do we buy or do we wait? To answer that, we look at a daily chart.

FIGURE 2: BAIDU, DAILY. Here's a daily chart showing a descending triangle.
Graphic provided by: AdvancedGET.
The daily chart shown in Figure 2 is suggesting the formation of a descending triangle. This is a triangle with a horizontal lower boundary and a downsloping upper boundary. This formation occurs when there is a certain amount of demand at a fixed price, yet supply continues to come into the market. Eventually, demand is exhausted and the price breaks out of the triangle to the downside. So what led me to look at this share as a possible buy?

FIGURE 3: BAIDU, DAILY. Here's a daily chart suggesting a short-term buy signal.
Graphic provided by: OmniTrader.
Figure 3 is an OmniTrader daily chart that gave me a buy signal. The vote line has signaled a buy based on the RSI 12-period strategy. The advisor rating shown on the chart is 65, which is a solid number. The entry price suggested is $120.62 on August 28.

I would be a buyer of Baidu based purely on the OmniTrader buy signal, but I would keep my stops very close.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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