BIDU UPDATE

BIDU is another one of my favorite trades, not just because it's a core short position still being held in the equities model portfolio at a +20.5% gain (with no leverage-just a straight short), but because that gain in and of itself proves what patience and letting a trade come to you can do. I often say that the individual investor's greatest edge over Wall Street is patience, YOU DO NOT HAVE TO BE IN THE MARKET ALL OF THE TIME, you get to pick and choose your battles as our orders are small enough to make us maneuverable.

I'm a firm believer that no matter what asset you trade, whenever your money is in the market, it is at risk. Look at Mortgage Backed Securities; I can just hear the sales pitch when they were pushing these, "The safest investment, your investment is backed by real tangible property, etc." and look what happened... MBS nearly brought down our entire financial system and to this day the problems around the world/Europe started with MBS in the US.

So in my opinion, if you are going to put your money in the market, there better be a very good reason, if you are looking for adrenaline, I live in Florida, I can recommend some great roller coasters that won't rob you of your life's savings.

The primary BIDU trade and the sub-intermediate trade...

 The BIDU 5 day chart... What's wrong with this picture? 1) volatility went nuts in a nearly parabolic move during the QE era as BIDU was one of the favorite momentum stocks, but what about volume? What about that tangle starting in 2011? A 5 day chart will reveal things a daily chart will not, such as BIDU's personality and character which looks very much like a stock that went through mark up/ distribution/ a topping process and is near stage 4 decline.

 The daily 3C chart with accumulation at the 2008 lows, some moderate distribution in to higher prices (remember institutional orders are large and they need time and they need demand to sell in to strength. The leading negative divergence of 2011/12 looks a lot more like short selling or VERY aggressive distribution, this should tell you something about the longer term BIDU probabilities.

 This is where we stalked BIDU and were patient. A large triangle like this after an extended uptrend is almost always a top, but before we see major reversals, we almost always see a head fake move; we waited for that head fake move in yellow to short BIDU, we let the trade come to us and it's still at a decent profit because of that patience.

 BIDU 4 hour, distribution in to a breakout move. Traders see a breakout from a large triangle and they buy, perfect for institutional money to sell or short in to as there's buying demand to fill the sell/short sell orders in large quantity. We basically shorted BIDU at the same place smart money would have.

 The long term Trend Channel held the uptrend without a single stop out until we hit the top area, at this point the indicator is telling us that the trend is over.

 Since then, BIDU has moved down as expected and formed a bearish consolidation/continuation price pattern, it even broke below it and it appears to be another bear trap.

 Th 30 min chart was positive during the formation of the bearish price pattern, this gave us our first hint a bear trap was being set up, look at the positive 3C divergence in to the break below the pattern where traders would be shorting on price confirmation.

 But is an 8% gain all hat we should expect from a bear trap that took some time and expense to put together?

 The 3 min chart going very positive as BIDU breaks below the bearish price pattern, then the reversal...

 The 5 min chart shows BIDU acting like the rest of the market with a negative divergence suggesting downside this week, the positive divergence today created not much more than a consolidation. In my opinion BIDU will pullback more with the market, it may even make a new low, but that may give us another opportunity to trade BIDU from the long side on a quick trade or sub-intermediate trade, maybe even a short squeeze with an impressive move up.

 Why do I think that? Look at the 15 min chart, it is still leading positive. If BIDU were about to start a new primary leg down, I'd expect to see a lot of distribution, not a positive divergence.

Even more evidence, look at the 4 hour chart, leading positive through the bearish consolidation, the break below it and since.

Keep BIDU on your radar, we need to watch for short term positive divergences telling us the pullback is ending and the next move up is about to start.