NEW BEARISH Plays

Baidu, Inc. ADR - BIDU - close 75.64 change -2.56 stop 79.10

Company Description:
Baidu, Inc. (Baidu) is a Chinese-language Internet search provider. The Company conducts its operations in China principally through Baidu Online Network Technology (Beijing) Co., Ltd., its wholly owned subsidiary in Beijing, China. It also conducts its operations in China through Baidu Netcom Science Technology Co., Ltd., which holds the licenses and approvals necessary to operate the Company’s Websites and provide online advertising services. The Company has launched a Japanese search service at www.baidu.jp, run by Baidu Japan. Its Japanese search services enable users to find relevant information online, including Web pages, images, multimedia files and blogs, through links provided on its Websites. Baidu offers a Chinese-language search platform on its Website www.baidu.com. It provides Chinese-language Internet search services to enable users to find relevant information online, including Web pages, news, images and multimedia files, through links provided on its Websites. (source: company press release or website)

Target(s): 71.50, 65.10
Key Support Areas: 71.40, 68.50, 65.00
Key Resistance Areas: 78.50, 82.25
Time Frame: Several Weeks

Why We Like It:
BIDU had a 10:1 stock split yesterday and investors piled into the stock today only to be met with fierce selling and I believe this has created a climax high. There also appears to be a nasty candlestick pattern forming that I have learned called a red candle high. Usually this signals more downside to come as buyers get exhausted and start to lock in profits and sell stock. From a fundamental perspective BIDU trades at a PE of about 99 to 1 which is simply too high. BIDU's American rival Google has lost about -20% since its January highs, while BIDU has went on to gain about +85%. This is a clear divergence from two similar companies that some may argue is justified due to BIDU's early stage growth. However, I believe it is a clear disconnect and I think investors will start dumping the stock on any further weakness. I believe the conditions are ripe for quick decent and I suggest readers initiate short positions at current levels. Our stop is above Wednesday's highs at $79.10 and our time frame is several weeks. Our first target is $71.50 which would fill the gap higher from Wednesday and coincide with a secondary trend line that started on January 29th. I'm ultimately looking for a move down to $65.10 which is our 2nd target. This stock can be volatile and is prone to gaps so please be smart when considering position size.

Suggested Position: Short BIDU stock at current levels.

Option Traders:
Suggested Position: Buy JUNE $73.00 PUT, current ask $4.20

Annotated chart:

Entry on May xx
Earnings July 15, 2010 (unconfirmed)
Average Daily Volume: 68 million
Listed on May 13, 2010