BIDU Follow Up

On Monday October 22nd I put out what I think is an interesting look at BIDU , what we were missing at that point, what we needed to see and some other details.

I ended the post with this...

"However there's not much confirmation among timeframes, only the 2 min, this is why I say I think BIDU needs that consolidation work to put together a high probability trade, the 4 hour chart is there, but now the other timeframes need to fall in place. I wouldn't chase BIDU here, but I would keep an eye out for consolidation work and I'll continue to update it as it develops."

I also said the following...

"Near term on this daily chart, I'm at a loss in identifying any price pattern here, if you see one shoot me an email, I do however see a clear resistance level and that is the only real upside magnet I see. I would be looking for a head fake move above the resistance area and to set up a new short position for the eventual decline, but until then, I think BIDU has a good chance of breaking above such a clear resistance level as traders will buy a breakout above such an obvious resistance area."

So several weeks ago we were looking for a potential break out in BIDU to the upside through VERY obvious resistance, but the charts hadn't come together yet, there was more of a downside move needed to put together the kind of accumulation that would breakout through that resistance and thereby pull longs in to the trade as they chased the breakout. Finally a break below support is one of the key timing events that tells us an upside reversal is near, so long as the break below support (head fake move) has solid positive divergences.

It looks like we waited the right amount of time as BIDU would have gone nowhere for us back then except in to the losing column, however now it's in a much better risk/reward area, it has much better probabilities and the timing looks much better which is the only reason I would consider options.

Here are the charts.

 Clear resistance is a tempting trade on a breakout through that resistance for most traders, the same could be said of support here, but most traders are prone to trade from the long side for a number of erroneous biases. The break below support is often a good timing signal (any head fake move is), remember, "From failed moves come fast moves" so the failure of BIDU to hold this break below support and move back in to the range will almost certainly send it quickly up to and through resistance.

If you really wanted to play this safe, you could wait for A) a move back above former support around  $105.75 or B) an even more high probability entry, but less profit would be to wait for the break above the resistance area at $117.20. I personally don't mind entering trades like this in an area like this, I most often would phase in to such a position allowing myself risk room and room to add if price dropped a little more (this is not averaging down a loser as it is planned in your risk management in advance and the extra position would only be added if the charts confirmed it was even more likely  head fake move.)

While this kind of entry seems risky, EVERY SINGLE CORE SHORT position from the February-May 1 period was entered in such a manner and not 1 of the 8 or so positions was at a loss, most were up between 15% and 30% before they were covered. Almost all of the recent leveraged longs entered last week were entered under similar conditions, you actually have less risk; however I understand that it is often difficult to do the exact opposite of what your emotions tell you; that's probably why it works so well.

 Here's the intraday break of BIDU, we have a nice triangle there today, I don't know if it's coincidental or intentional, but volume is picking up as it probes the upper resistance trendline. A move above roughly $106.50 should get upside momentum rolling.

 The 15 min. Bollinger Bands are also pinching as that triangle is well developed. I'm not sure how big of a move BIDU can press here, I'm thinking at least the $120-$121 area as a minimum and that's why I'd choose options for added leverage. Above that resistance level in the $120's I'd be keeping a VERY close eye on BIDU for any sign of distribution in to price strength as it is likely that BIDU will set up again as a core short as it already was once for a great gain with no leverage. An upside move with distribution is the exact opposite "head fake" move discussed above, just on a larger scale and probably setting up a larger or core short position. So there are 2 potential trades in BIDU.

 My DeMark inspired custom indicator shows buy and sell areas during the range on a 50 min chart, note the sells all at the top of the range and the buys at the bottom, the current signal would be a buy.

 Since the BIDU positive divergence only goes out to about the 15 min chart, I'm thinking it's more in line with the broad market move we still expect (as the market still hasn't moved much out of the range we expected) and thus probably not a long term long position, but more likely sets up the short mentioned above. In any case, the last run in late October fell short of resistance which is a give-away signal to technical traders that BIDU is likely to fail at resistance, however just in case, it seems not only was the range in BIDU manipulated using divergences (selling at resistance to create a range/resistance), but it also saw a negative divergence before it could hit resistance that sent it lower, once lower where stops would be hit, the positive divergence went leading. Under support there's cheap supply, easy to accumulate, that looks to be what happened here.

 A closer look at the 15 min chart and the leading positive divergence after support was broken, a high probability head fake move.

On a short term timeframe like 3 min we also see the negative divergence sending BIDU below support to the left and the leading positive divergence since, with the 15 min and the shorter timeframes all in line, we finally have what we were missing in October when we looked at BIDU, a high probability trade and ironically it worked out just about the exact way we imagined over 16 days ago!