A Hundred Times

A Hundred Times

May 17, 2017 Off By Chuck

Baidu (BIDU) which literally translated means “A hundred times” is one of the largest internet companies in the world and China’s search engine leader.  Since reaching an all-time high in late 2014, found a bottom a year later. Since that time it has been making a series of lower highs but higher lows essentially going nowhere. This, as we know, creates a symmetrical triangle pattern. A break out of the pattern can occur in either direction and because of its unreliability, an investor who took a position in the direction of the break needs to be alert for the possibility the break was a fake and price quickly reversing in the opposite direction. With all this uncertainty and potential management headache many investors will be better off ignoring these patterns and move onto something with a higher probability.  But those willing to take the risks see the upside targets these patterns offer well worth their hazards and Baidu is no different.

After last week’s breakout from the pattern on some 20% increase in volume combined with momentum above 50 and rising, provides some level of comfort this move is real. Baidu’s (BIDU) first conservative upside target is back up to prior highs at $250, some 30%+ higher.  Beyond that is anyone’s guess as once price has moved onto new highs and it gets into rarefied air, reasonable target estimates become fuzzier. An investor who wants to wait for a confirming move higher this week could buy the breakout and place a stop just under the breakout level. A move back into the pattern would invalidate it and provide the reason to exit the position. Using this management framework offers the investor an excellent opportunity to make $4 for every $1 invested. Personally, I would take an opportunity offering this risk to reward ratio a hundred times out of a  hundred.