A Closer Look at BIDU

BIDU was a short trade idea from 3/28

A quick overview and today's action...

BIDU has formed a large triangle after an extended rally, triangles of this size are almost always tops, if the preceding trend was down and then a large triangle formed, those are almost always bottoms. They are simply too big to be consolidation patterns. MoneyStream on a daily chart shows a negative divergence going in to the highs of BIDU's run which is the start of the triangle. Since then MS has gone in to a leading negative divergence.

I don't know why, but whenever the subject of triangle tops come up, I think back to a short call in ADM which formed a triangle, it wasn't a huge triangle so I don't know why it sticks with me like it does, but it will do for our purposes.

 The preceding trend in ADM was up and the triangle formed. Like I said, it wasn't huge, but the price pattern implied target was a little over $30 and as usual, price overshot the target (that pendulum effect in the market) and hit a low of about $24, declining almost 36% from the highs and about 35% from the head fake move.

 Here's a closer look at the ADM triangle.  As with BIDU and MANY top formations, there's typically about 5 points of contact between support and resistance. You can even see a head fake move below support just before ADM made its last run which was also a head fake move. Traders see these triangles and they chase the breakouts, which sets up a bull trap, which sets up a snow ball move down-"From failed moves come fast moves" as my friend says and you can see that at the red arrow which in 1 day, put 3 months of longs at a loss.

 I first became interested in BIDU when I saw the triangle forming, I waited to see if there would be a breakout and that's about the time I brought you the trade idea. In the red box, note we have a nearly textbook Harami X Shooting Star reversal with confirmation coming on a bearish engulfing candle. I've seen many of these confirmed reversal patterns drift for a week or so before breaking down; the strongest gravitational pull on any given stock on any given day is the market's direction. Of course that's a general rule, but it holds true, hence the saying, "A Rising Tide Lifts All Boats".

 Here's the intraday action on a 60 min chart since BIDU broke out of the triangle (lower trendline). There's some intraday support which would probably make for a nice entry upon that being broken and of course a move back in to the triangle.

 Here's the daily 3C signal with a positive divergence at the 2009 lows and a leading negative divergence much like Money Stream now.

 Here's a smaller triangle within the larger one and the breakout of the larger triangle coinciding with this triangle roughly, the 60 min chart showed a relative negative divergence at the breakout, this is when BIDU became interesting, since it has started leading negative.

 As the shorter timeframes flow in to the longer ones, it's no surprise the 15 min chart's divergence at the breakout is much sharper. Even at the breakout, 3C's position was leading negative, it has grown worse.

 On a 5 min chart, BIDU shows the same accumulation last week as the market on the same days, directionally it even moved the same way on the same days. That short term positive divergence has gone negative today (selling in to strength).

 Here'a a longer term trend of the 2 min chart, note the intraday positive divergence to the left at the white arrow on a shakeout below the triangle's support, as usual, stops were hit and those shares were accumulated for the breakout run, this is a mini version of what happened in ADM.  As you can see, it was negative at the breakout suggesting smart money was selling or shorting in to demand by those buying the breakout. The intraday accumulation we saw in the market last week that is feeding the bounce of Friday/Today is present in BIDU as well, but only intraday and on short term charts.

Here's a closer view of BIDU on the 2 min from Friday through today, BIDU went negative at the morning highs and at the test of resistance around 2:45.

I'll be looking for an entry in BIDU, I know several of you are already in. Another thing I like about BIDU and this kind of trade in general, a stop can be placed above the recent highs so the risk factor isn't too bad.