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Fan Yang

Baidu (BIDU) has downside to 130 after triangle breakout

NEW YORK (TheStreet) -- Shares of Baidu (BIDU) are down by 4.56% to $156.10 in pre-market trading on Tuesday, after the Chinese online search giant lowered its revenue outlook for the current quarter.

Baidu now expects second-quarter revenue to range between 18.1 billion yuan and 18.2 billion yuan ($2.81 billion to $2.82 billion), down from its previous forecast of between 20.11 billion yuan and 20.58 billion yuan.

The reduced forecast reflects a drop in advertising spending by healthcare customers due to increased scrutiny of the medical sector. Last month, Chinese regulators limited the number of healthcare advertisements carried by Baidu following the death of a college student who attempted to treat his cancer with a therapy found through a sponsored Baidu link.

(Full article on TheStreet.com)

Looking at BIDU's price movement, we can see that this stock is indeed setting up for further downside.

BIDU Daily Chart 6/14

(click to enlarge)

1) Broken triangle - the daily chart shows BIDU breaking below a triangle support. Note that this was preceded by a failed attempt to reach the triangle resistance area. 
2) Bearish momentum - The RSI tagged 30 and then held under 60, which shows development of bearish momentum. 
3) Fundamentals - The lowered revenue expectation should keep pressure on BIDU

130 in Sight: Looking at the chart again, the start of the triangle is just above 130, which is where I think BIDU has downside risk towards. If there is a pullback, I would anticipate resistance in the 170-175 area. If price climbs back  above 180, the bearish outlook might be wrong. However if price now starts to hold under 170 after a couple of failed bullish attempts, I would have more confidence of the bearish outlook.

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