BIDU Nearing Historical Support

10/06/2008 10:39 am EST

Focus: STOCKS

Nick Perry

Equity Options Trader, Schaeffer's Investment Research

Shares of Baidu.com Inc (BIDU) are nearing a historically important area. As the weekly chart below shows, the stock is pulling back to the level that marked the bottom in March.

chart

I am typically not one to try to catch a falling knife. Instead I like to look for signs that a short-term bottom may already be in place. Many times, that is best accomplished by first starting to watch a stock as nears support. In this case we have a stock that is just beginning to hit support so we are still "early" in the process.

What makes this situation interesting to me is that it is a stock that can definitely move, and we have some encouraging sign on the sentiment front. The first sign comes from the Street where we see that analysts are mostly on the sidelines. According to Zacks, three of seven analysts (43 percent) rank the stock with a "buy" rating. The second comes from short interest. According to data collected by our Quantified Analysis group, 11% of the stock's float is now sold short.

I would call these two indicators encouraging because it shows this isn't a situation where the crowd is betting on a bounce. In strong markets I would much prefer to look for skepticism on a strong stock, but this is clearly not a strong market. As discussed earlier this week, I am looking for stocks that have pulled back to support. This gives a clear way to define the risk.

By Nick Perry of Schaeffer’s Trading Floor Blog

Related Articles on STOCKS