(Click on charts to enlarge, then click on the charts again for further enlargement. Use back arrow at the top of your browser to return to the narrative).
When markets are called lower, as they were today on the terrible disaster in Japan, it isn't a good idea to leaping into stocks that are selloffs, especially into stocks that already are broken to the downside, but sharp selloffs often provide buying opportunities in stocks that are acting bullish, like Baidu (BIDU).
We can see from this hourly chart that the stock had a DOUBLE breakout to the upside on Friday: Pattern #1, in white, is an Ascending Triangle; Pattern #2, in yellow, is a bullish Inverse Head & Shoulders pattern. On a selloff, the tops of those patterns are possible areas of support.
The top of the Ascending Triangle (horizontal white line) didn't provide support today, but the neckline of the Bullish Inverse H&S did.
We can see in the 10-Minute chart that when BIDU broke out of the Bullish Inverse H&S pattern (white arrow), it went on a four dollar rampage to the upside, much of which is caused by short sellers being caught out of position and being forced to cover by buying. Longs are buying the technical upside breakout, and shorts also are buying to get out of a losing position. The proverbial everyone is a buyer, and the buying begets more buying as the stock rockets higher.
Friday's breakout rally was pretty much parabolic (straight up), and those rallies often get "called back" because there isn't any base-building during the rally. Straight up ... then straight down, as we see in this chart.
BIDU found support today just above the neckline (horizontal white line in this chart), at the yellow arrow. Shorts who didn't cover the upside technical breakout on Friday were given another chance to "buy to cover" their short position on that selloff. If they didn't cover, they got squeezed again to the upside during afternoon trading.
Prior to the Bullish Inverse H&S breakout on Friday, the NASDAQ had begun to rally, but BIDU looked stalled out below the breakout. I sold my long position for a break even trade, just minutes before the upside breakout. UGH. I hate it when that happens ;)
I took a few stabs at buying BIDU today and came out alright, so that made up a little for not participating in Friday afternoon's stunning rally.
Gain: $1,750.
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