BIDU – A Nice Short Setup

Here's a a shorting opportunity, on BIDU, the dominant Chinese internet search engine.

First the background. The stock has been growing like a weed. Even though p/e ratios are sky high, they could be justified by the rapid growth of both earnings and revenues over the last few years.

Even though I'm bullish on this stock for the longer run, I feel it's getting ready to dip a bit before continuing its run up. Note the blue traced waves indicating the stock might be at the top of its 5th wave in a minor wave sequence. That would suggest a top is close, and a correction could be expected in a typical A (down) B (up) C (down) sequence. That corrective sequence typically ends at the top or bottom of the second wave up (for Ellioticians, points 3 or 4).

Since I feel the bigger trend is up, I don't expect a correction below 130. Still, that would be a drop of 11%, enough to warrant a counter trend short.

I always like to look for corroboration on a second set of indicators. Elliot wave patterns are notoriously tricky to recognize, and easy to misinterpret. So I'm pleased to see the corroboration I get on the divergence I see by tracing the highs of the price and the respective peaks on the rsi for those dates. Prices are making higher highs while the rsi is pointing down. This is a sign of an overbought stock.

I'm selling short here at 145. I expect intermediate pauses at previous lows, namely 140 and 136. Whether or not I get out at 136 will depend on the chart at that time.

Let's see what happens! Wish me luck.