Trade Idea / Trade Follow Up: BIDU (Short)

BIDU which was one of our best examples of letting the trade come to you and using the head-fake to allow for the best entry, the lowest risk and best timing and it made good money as a short in a short duration.

Recently BIDU was added back as a core short position, except it was meant to be phased in to. I still have 2/3rds of a position to fill out to bring it to a full position and since first entering, it's only seen draw down -3.84%, well within even the tightest risk management.

I believe BIDU is going to come to us again, I see one of two possible entries, the second is looking more probable, but I'd prefer the first. First off though, lets review BIDU.

This is the original October BIDU 1/3rd Entry post : Trade Idea: BIDU (Short)

This is the same day analysis of BIDU, which  is interesting for a couple of reasons BIDU Trade Idea Update

First, it takes a quote from a September post talking about shorts like BIDU and WHY at that time in September we were expecting a market move higher before we ever had any 3C confirmation of the accumulation for the move which was about 3 weeks just prior to the October 9th low cycle we are at the top of. This is the start of that post...

"I don't know why I didn't do this before, but I had been reminding you after the fact that before the bounce off the 10/9 lows, I had been looking for a strong rally to the upside and this was BEFORE there was any 3C indication of it.

My reasoning was that there were "Hundreds" of shorts on my watchlists that were just so close, but they needed that extra little push and that wasn't happening without the market driving."

"The comments from Sept. 25 as this is relevant to BIDU (Bold was from the original post)...

"In fact, the best reasoning I see for a market bounce is hundreds of individual stocks themselves and the vast majority have their own signals to bounce.

HOWEVER, LETS NOT FORGET THE OTHER SIDE OF THE COIN, that's why I took the time to remind you in the post linked above, what the averages look like and they are no joke. Those aren;'t divergences off in the future, those are divergences we are in the middle of right now so now is a time to pick and chose your battles, to be patient and know when to paddle in or when to swing that bat."

These comments are from Friday Sept. 20th...

"Last night I was trying to communicate that there's almost always a goal behind a market move, like when I said, "That Bull-Flag didn't appear by chance " yesterday. I explained the reason as well, the hundreds of beautiful short set ups that are just 1-4% away from near perfect entries, but more than that, from the kind of demand (higher prices and volume) Wall St. needs to position in the size they trade, so I haven't changed my tune at all since August when the accumulation range started forming, I'm saying right now and last night the exact same thing in August that I thought would happen and thus far has."

Now fast forward to the present, remember the BIDU Core/Trend Short is only at 1/3rd size and needs to be filled in, this is why I was waiting for better prices to enter the rest of the position.

 This is a weekly chart of BIDU (where I like to start my analysis to get an overview). The area at "A" is a classic healthy bull market, volume is expanding with price; note when that stops.... right at the 2009 QE 1 lows.

The purpose of 1, 2 and 3 is to show how a trend in stage 2 mark-up accelerates and gets very vertical going in to a top, many times the most bullish looking price behavior is a major red flag, as I often say, "Price is deceptive".

At "4" we have a large symmetrical triangle, this is WAY too big to be a consolidation pattern, larger triangles after an extended uptrend or downtrend are most often tops or bottoms.

At 5 we actually have a new high, this "could be considered a large scale head fake move because the new high is what retail is buying, that's the reason (or one of several) for a head fake move, to create demand and better prices, just like the gap down in VXX today created supply and better prices.

 On a daily chart, we knew the triangle to the left had major distribution in it, we also knew it was highly likely that there would be a head fake move in the form of a false breakout to the upside before any significant downside, that makes a perfect entry.

We were patient with BIDU, we let the trade come to us and when the breakout came in a small triangle, we expected one more because that's how predictable technical traders are and Wall St. uses that against them every day. We entered BIDU short in a phased in position all in the yellow box in 2012 and then rode BIDU down.

At "B" you have a perfect head fake with a bullish "Bull-flag" that technical traders expect to breakout to the upside, many will enter on the price pattern alone and then we have a large gap down leaving retail technical traders (bulls) holding the bag.

At "C" we have a new "Bullish price pattern, an ascending triangle, but it's too large to be a consolidation/continuation pattern already, it's likely acting as a top and has good head fake potential.

This is the same ascending triangle, first month Technical traders learn these triangles and know an ascending triangle is expected to breakout to the upside and start a new leg higher, so long as we know there's distribution already present in BIDU which we know from out initial entry, we know the chances of an upside breakout being a false or failed breakout are very high, but the breakout provides us with a short entry that is a better price, much less risk and much better timing as head fake moves usually come right before a change in trend.

 Looking at Don Worden's Money Stream, we see MS confirming BIDU's uptrend in 2010 and MS going negatively divergent (distribution) in to the large triangle top we first shorted in 2012 in the yellow box. Since then, MS has been in line confirming BIDU's downside price action, but as soon as BIDU lifted to the upside in 2013, the Money Stream divergence grew even larger, to confirm Money Stream should be making a new high on the chart, instead it is leading negative and this is a daily chart, so that's a significant divergence.

 Here's the daily Trend version of 3C, although 3C is also an underlying trade money flow indicator, it is nothing like Money Stream in it's formula or code, however, like Money Stream it too confirms the 2010 uptrend and then goes negative in to the 2011/2012 triangle and leading negative at the head fake breakout we entered short in the yellow box. 3C also confirms the downside action after the short entry and when BIDU moves up in 2013, just like Money Stream, 3C goes leading negative (distribution), in fact it looks almost exactly the same as Money Stream, these are two VERY different indicators and the only way they'd look so close is if the underlying trade is actually doing what they show it to be doing, distribution.

The 60 min 3C chart of BIDU which is a VERY strong timeframe is leading negative in to the uptrend, remember with each faster timeframe we get more detail, but the longer timeframes show the larger trend.

Specifically in the yellow box where the ascending triangle is we see a strong leading negative divegrence.

The 30 min chart shows more detail, how BIDU moved with some accumulation on a smaller scale that doesn't show up on longer charts, it's enough to get BIDU moving up so they can sell those shares in to higher prices and once demand kicks in they can also sell short in to higher prices, the same thing we want to do.

 The 10 min chart is more local, although if we could see enough of the trend, we'd see the trend leading negative in a much bigger way, but here we see numerous smaller acc./dist. steering areas and a very strong leading negative divegrence in to the triangle.

The intraday 3 min chart shows an accumulation area (very small as it doesn't even show up on a 10 min chart, but that is how they created the ascending triangle, that bullish triangle is not there by coincidence, it was put there as price was falling institutional money or even market makers stepped in and accumulated enough to halt the slide and send BIDU up so they can sell in to higher prices and the distribution is very sharp, much more than the accumulation that sent prices higher, in fact leading negative to a new low.

 This is an intraday 1 min chart, the weakest underlying flow, but the most detail, note distribution at every top to form the flat top of the triangle, also note that each one (as the market is fractal) is a head fake move that was distributed as it is above the yellow line where a new high or some other buying feature is present.

My first choice entry is "A", a breakout to the upside above the $170.78 level, the breakout would usually be quite strong, it has to attract the attention of bulls and convince them that this is a strong move, they are selling a lie, so they must really make traders believe so don't just expect a move to $178.85.

Once we confirm distribution in to a breakout, we know the probabilities are very high it will be a failed breakout and "From failed moves, come fast reversals", this is the hardest to short emotionally, but it is the best price, the least risk and best timing so holding your nose and jumping is actually rational even though emotionally it is hard to short a strong looking breakout.

Option "B" is if we don't get an upside breakout, I don't think this scenario is probable because why build the bullish ascending triangle knowing most technical traders have limit orders set just above resistance, if there's no breakout, there's no increase in demand to short in to (as large institutions need large demand to short/sell in to) and no higher prices.

However, if it is "B" and we see a break below the triangle first (consider it may be a Crazy Ivan shakeout), I don't want to short the first break below the triangle, that's where retail will be shorting. Typically they (smart money) will run price back up inside the triangle and with a Crazy Ivan, even above the triangle and force the shorts to cover, when shorts cover they are buying so they are creating demand once again and if the move is above the triangle we have bulls joining to create even more demand so it's that move I want to short in to.

I'd set alerts on both sides of the triangle, I'll be on top of it and let you know what we see, but since there's already such large distribution, the chances of any breakout being real are very low, the chances of a head fake move are very high and that's also where out HIGHEST PROBABILITY TRADE IS.