BIDU: Four More Bullish Patterns

(Click on charts to enlarge, then click again for further enlargement. Use back arrow at the top of your browser to return to the narrative).

After BIDU rallied to 121.45 off the opening low at 118.00, I made a stupid play, which I call "the vengeance trade." I was annoyed that my order at 118.32 didn't get filled, so I decided to buy BIDU if it retraced 50% of the opening rally from 118.00 to 121.42, which was 119.71. That play isn't entirely stupid because it often works, but the market was down hard on the morning and the logical stop loss would be below the morning low of 118.00 for a loss of $1,700 if I got stopped out.

BIDU continued lower after I bought it and I had a paper loss of roughly $800. UGH. When the stock rallied, I sold it at 119.75 for a tiny gain, then "got a grip." Especially in a market that is tanking, like we have been this week, it's better to wait for good opportunities based on good technicals, which I found yesterday afternoon.

Coming off the session high of 123.27 (upper left), BIDU formed a Falling Wedge, the pattern in white in the above chart. Then it formed an Ascending Triangle, the pattern in yellow, and broke out of that and went up to the red line, which set up a "possible" neckline (horizontal red line) for a Bullish Inverse Head and Shoulders, which would be Bullish Pattern #3.

I bought BIDU at 122.27 on the pullback from that putative neckline, to the highs of the Ascending Triangle (horizontal yellow line). That was a MUCH higher entry than my original order at 118.32 that didn't get filled (Curses!), but we can't be afraid to take advantage of a solid opportunity, even if we have to "pay up" to get it. My stop loss was below the low of the Ascending Triangle (pattern in yellow), so not a lot of risk in the trade.

BIDU then formed the Right Shoulder of the Bullish Inverse Head and Shoulders (pattern in red) and broke out of it, then form Bullish pattern #4, the Bull Flag (pattern in green).

As we have discussed so many times in the past, when we get "nested" patterns (in this case, four bullish patterns), the breakout can be powerful. As we can see, when BIDU broke out of the Bull Flag (pattern in green), it rocketed straight up toward the session high of 123.27, which is what the breakout suggested. I "sold into strength," at 123.07, not wanting to hold the position overnight. The aftenoon high was 123.10, so I darned near caught the high. BIDU closed at 122.23, four cents below my entry, so it paid off to "sell into strength."



Gain on the two trades: $800.

Despite BIDU's bullish behavior in a lousy market environment, there's always a "Bear Case," so let's look at that.



The argument for The Bears is that the rally off the low at Yellow #1 has been nothing more than a snapback Rising Channel (pattern in yellow) rally to close the gap (solid red line). The recent rally failed just below that red line, then BIDU sank all-ll the way back to the bottom of the pattern (yellow arrow) at yesterday's open.

Yesterday's 118.00 low at that yellow arrow is called a "trendline validation." Ms. Market told us very clearly, "Yes, that IS support" when BIDU banged off there and rallied more than five points higher on the session.

Yesterday's rally, however, "could have been" nothing more than a snapback, gap-filling rally, back toward Monday's close. Bottom line: I view that lower rising trendline as important support. If yesterday's 118.00 low gets taken out to the downside, that would give a strong suggestion that BIDU will head down toward the low of this Rising Channel, at 112.95.