The Short Side of Baidu (BIDU) (July 21, 2012)
BIDU
I’m Dan Ftzpatrick at StockMarketMentor.com on Saturday, July 21st, the first day of Journey’s new concert this year, so we’ve got that going for us, which is nice. Look, BIDU ( $Baidu.com, Inc. (ADR) ), over the last few days I covered this thing since it formed this long tailed cat, as I call it, and we got a nice trade to the upside. My suggestion, on the last video, was to be keeping your stop so that you could ride it as long as you can. Keep it based on the prior intraday low, because that tells you, as long as the stock prints higher intraday lows, like it did on Friday, that tells you that the stock is still being bought on dips; and so that’s certainly the case going into the weekend. Now if we look at the intraday chart though, you’ll see, on Friday this got a big sell off; intraday rallied up close to that level, and then it’s just kind of trickled around starting to catch some real selling now towards the last end of the day, so this was not exactly a resounding party for the bulls here, not at all. So here’s what I want to do, we might as well follow this thing through. I would say now this is setting up for a short, because first of all the downtrend, obvious lower highs, lower lows, also the little zigzags here, they kind of go up about to where it is now and then they reassert themselves to the downside; but also you look here, and I’m looking at, I mean this isn’t a really super massive short like Whitney Tilson did on Green Mountain Coffee Roasters ( $GMCR ) for about 90,000 points or whatever, but here’s what it is; if we look at support, like trending down about like that, we’ll say you can draw your lines anyway you want, that would also be a good, but we’ll just leave the first one, and we’ve got the maximum power of the bulls on Friday, up here at $111.90, we’re going to call that $112.00. So right now, if you were to short this stock, saying, “Well I think it’s going to go back down and hit the bottom here, we’ll call it $105.00, well let’s call it $104.00. I think this stocks got about $6.00 of downside in it.” Okay, well that’s fine, so go ahead and short the stock; now you’re going with the trend now, you’re playing the zigzag, zigzag, zigzag, zigzag, zig, now you’re playing the zag. But what do you do? This is the cool part, you get your risk defined, your risk is right up above $112.00. If BIDU ( $Baidu.com, Inc. (ADR) ) moves above $112.00, then you know that the bulls are still in charge, you don’t want to be short the stock, so you simply cover your short for a small loss, like less than two percent. That is an easy deal, that ‘s an easy loss to take; a little two percent loss is not a big deal. On the other hand, if the stock does start to work for you, you’ve got about $6.00 of downside, so you’re risking $2.00 to make $6.00, that’s a pretty good risk reward; so let’s just go ahead and follow BIDU ( $Baidu.com, Inc. (ADR) ) all the way through. By the way, isn’t that consistent with what I was saying last week when we first started talking about this stock? This was our risk to the downside, wherever you bought the stock up here, your risk is the difference between where you buy it and this intraday low on this big long tail day. So we’re just doing the same thing only in reverse, so that’s it. Members, in this weekend update I actually have several stocks that I think are setting up for shorts; even if you don’t short I want to look at the videos because you’re going to learn something about shorting and you’ll probably wind up wanting to short, so get over there now. Free Chart