Baidu, Inc. (BIDU) reports earnings after the closing bell on Monday, Aug. 19, with the stock holding its value level for August at $95.19. The company is a Chinese technology giant specializing in internet applications including artificial intelligence.
The stock set its all-time intraday high of $284.22 during the week of May 18, 2018, and since then, it has crashed by 67% to a multi-year low of $93.39 set on Aug. 15. Baidu shares closed last week at $96.70, down 39% year to date and in bear market territory at 58.8% below the 52-week high of $234.88 set on Sept. 21, 2018.
Analysts expect Baidu to post earnings per share between 92 cents and $1.03 when the company reports earnings after the close on Monday, Aug. 19. The stock has been hurt by the economic slowdown in China and the ongoing trade war with the United States.
On May 16, Baidu missed earnings estimates for the first time since it became a publicly traded company in 2005. Baidu is losing market share to NetEase, Inc. (NTES) in the gaming space. Baidu has been knocked off the list of China's five most valuable internet companies. The stock is reasonably priced with a P/E ratio of 15.10 without offering a dividend, according to Macrotrends.
The daily chart for Baidu
The daily chart for Baidu shows the formation of a "death cross" on Aug. 27, 2018, when the 50-day simple moving average fell below the 200-day simple moving average to indicate that lower prices would follow. The stock followed this sell signal to its 2019 low of $93.39 set on Aug. 15, 2019. Baidu stock is well below its semiannual, quarterly, and annual risky levels at $149.36, $206.68, and $242.91, respectively, but above its monthly pivot for August at $95.19.
The weekly chart for Baidu
The weekly chart for Baidu is negative but oversold, with the stock below its five-week modified moving average of $109.68 and well below its 200-week simple moving average, or "reversion to the mean," at $191.88. This average was last tested during the week of Nov. 2, when the level was $200.30. The 12 x 3 x 3 weekly slow stochastic reading declined to 7.69 last week, down from 8.79 on Aug. 9. The reading below 10.00 makes Baidu a stock that has become technically "too cheap to ignore."
Trading strategy: Buy Baidu stock on weakness to the monthly pivot at $95.19 and reduce holdings on strength to the semiannual risky level at $149.36.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on July 31. The quarterly level was changed at the end of June.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.