Chinese search giant and Nasdaq 100 component Baidu, Inc. (BIDU) is set to release fourth quarter earnings after Thursday's closing bell amid reports that the U.S. and China are rapidly approaching trade deal that should de-escalate tensions and improve commerce between the two nations. No one will be more pleased than long-term Baidu shareholders if that happens, following a brutal 2018 that booked a negative 32% return.
The decline ended near 2016 support in the $150s in December, but the first quarter uptick has been uninspiring, lifting the stock about 10% compared to the Nasdaq 100's 21% advance. Chinese economic growth was waned badly in the past year, affecting the company's torrid growth rate, and there are no guarantees that a deal will undo months of bearish headlines and weakening consumer sentiment.
BIDU Long-Term Chart (2005 – 2019)
The company came public on the American exchanges in August 2005, opening near $6.00 and easing into a downtrend that posted an all-time low at $4.44 in February 2006. Committed buyers then took control, lifting the stock back to the IPO opening print in May, ahead of June 2007 breakout that gathered strong momentum into the November high at $42.92. That marked the highest high for the next two years, ahead of a double top that broke to the downside during the 2008 economic collapse.
The decline settled at a two-year low near $10.00 a month later, marking a historic buying opportunity, while the subsequent recovery wave completed a round trip into the 2007 high in October 2009. A 2010 breakout caught fire, booking impressive gains into the August 2011 top above $161, posted at the same time that commodities worldwide were ending historical uptrends driven by Chinese infrastructure projects.
The stock mounted the 2011 high in 2013, but momentum failed to develop until the second half of 2014, when the uptrend surged above $250. Aggressive sellers took control once again in 2015, dropping price more than 115 points into the August low at $135.61, ahead of a slow-motion uptick that reached the 2014 high in the fourth quarter of 2017. The subsequent breakout was short lived, stalling quickly in the $270s before failing in an October 2018 breakdown.
The sell-off into December 2018 crossed the .618 Fibonacci retracement level of the 2015 into 2018 uptrend and reversed, lifting back above that harmonic level in January 2019. More importantly, the monthly stochastics oscillator fell at the same time to the most extreme oversold reading since 2015 and recently crossed over. However, a new buy cycle won't be confirmed until both lines lift above the oversold level.
BIDU Short-Term Chart (2017 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator matched price action in 2017 and early 2018, hitting a new high in October 2017 and testing that level in May 2018. However, it broke down from the double top pattern in August, two months ahead of price, and fell to an eight-year low in December. This signals an aggressive exodus of institutional capital that will take months or years of healthy buying interest to replace.
The stock broke out above the black trendline of lower highs in January, but the lack of buying momentum raises a red flag, indicating a potential false move. It has been stuck at the 50-day exponential moving average (EMA) for the past five weeks, signaling a holding pattern while awaiting the outcome of trade talks. That event could trigger an intermediate breakout that lifts the stock 25 to 35 points into strong resistance above $200.
A Fibonacci grid stretched across the 2018 decline offers actionable data, but there's still no confirmation that the December low marked the lowest low of the big price wave. This view highlights tough resistance just above $200, where the October double top breakdown, 200-day EMA and .382 retracement levels have narrowly aligned. It will now take a healthy buying thrust above this price zone to ease the bearish technical outlook.
The Bottom Line
Baidu stock could rally above $200 in reaction to positive catalysts, but it isn't likely to reach new highs in the next 12 to 18 months.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.