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Stock Watch

Chart of the week – Baidu (BIDU) due for a potential tactical rebound

Chart of the week – Baidu (BIDU) 

Due for a potential tactical rebound (Medium-term technical analysis)

Time stamped: 8 Aug 2021 at 4:00pm SGT (click here to enlarge chart)

Source: CMC Markets

  • The share price of Baidu Inc’s ADR (BIDU), one of the major China Big Tech firms listed on the US NASDAQ exchange has tumbled by -56% from its all-time of 354.58 printed on 22 February 2021 to hit a seven-month low of 153.16 on 27 July 2021.
  • The main catalyst for such bloodshed is the never ending regulation that are getting more “nationalistic” rather than a focus on “best business practices” that have been imposed on China technology firms related to e-commerce, have an enormous influence on China’s society and holds massive amount of big data on Chinese consumers.
  • The next potential regulatory target maybe e-gaming technology firms after the latest clamp down targeted on web-based/online education firms. Last Tuesday, an article published by a state-owned news agency flagged out the online gaming industry as “spiritual opium”, a social ill that led to a rampant sell-off in the share prices of game publishers such as Tencent and NetEase. Interestingly, the earlier article with references to “spiritual opium” had been removed in a revised version. The next day, the state-backed industry group, China Game Publishers Association Publications Committee reiterated the benefits of gaming  and said China’s regulations are narrowly tailored to reduce the harm to minors.
  • Baidu (BIDU) has manged to end last week almost unchanged at +0.15% to close at 164.26, a better performance from its previous week (26 July – 30 July) loss of -5%. Baidu will report its Q2 2021 earnings result on Thursday, 12 August before the US session opens.
  • Several positive technical elements have been spotted at the key long-term pivotal support of 150.40 which is defined by the major ascending trendline from 18 March 2020 low, 76.4% Fibonacci retracement of the prior major up move from 18 March 2020 low to 22 February 2021 high and the 1.00 Fibonacci expansion of the on-going corrective decline from 22 February 2021 high to 8 March 2021 low projected to 17 March 2021 high.
  • It has formed a weekly bullish “Hammer” candlestick pattern last week after a retest on the aforementioned major ascending trendline from 18 March 2020 low coupled with a bounce seen in the daily Relative Strength Index (RSI) at a significant corresponding support at its oversold region. These observations suggest that the on-going corrective decline is overstretched, and downside momentum has started to wane which advocates a potential tactical rebound at this juncture.
  • If the 150.40 key long-term pivotal support holds, BIDU may start to shape a potential medium-term (multi-week) up move to target the first resistance at 204.90 (swing high areas of 1 June/28 June & close to the 23.6% Fibonacci retracement of the decline from 22 February 2021 high to 17 July 2021 low). However, a weekly close below 150.40 invalidates the recovery scenario for an extension of the corrective down move towards the next support at 116.40/114.20.