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Baidu Shares Take a Hit - Here's the Buy-the-Dip Setup

Baidu shares are taking a hit after a mixed earnings report and an SEC probe into its majority owned iQiyi. Let's look at the charts.

Baidu  (BIDU) - Get Baidu, Inc. Sponsored ADR Class A Report investors were looking for a post-earnings pop that could potentially put the 2020 highs back in play from January.

Instead, the post-earnings reaction is lower, with the shares off about 7%. Like DraftKings  (DKNG) - Get DraftKings Inc. (DKNG) Report, the report is mixed.

Earnings of $2.08 per share beat expectations by 66 cents. However, revenue of $3.69 billion slipped 1% year-over-year and missed analysts’ expectations by $30 million.

Investors are also deciphering news related to iQiyi  (IQ) - Get iQIYI, Inc. Sponsored ADR Class A Report, which is down roughly 13% on news of an SEC probe. Baidu owns a majority stake in iQiyi, so the selling pressure in the latter is hurting the former.

With a mixed report and some sloppy trading, let’s look at the charts for Baidu now with earnings out of the way.

Trading Baidu Stock

Daily chart of Baidu stock.

Daily chart of Baidu stock.

On the downside, shares of Baidu really have not been impressive. At their highs in January, Baidu shares were down about 10% year-over-year. Over the past two years, the shares were down more than 40%.

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Put simply, this stock has been under a ton of pressure and we’re not seeing the bulls come to its rescue. 

Even at its post-March high, Baidu stock was up 65%. That is about in-line with the Nasdaq now and well below the performance of the markets other laggard stocks.

The shares are now up just 41% from those lows. On the plus side, though, the bulls may have a trading opportunity at hand.

With Friday’s decline, we’re seeing a dip into the $115 area. There Baidu stock finds the 200-day moving average, which was support in July. The 50% retracement is nearby as well, at $114.69.

Investors who take a long position will know quickly whether it will fail or succeed. If BIDU closes below the 50% retracement, it will fail and the bulls may consider stopping out of their positions. A close below this mark puts the 38.2% retracement in play near $107.

If support holds, look for a rebound back up to the $122 area. There Baidu stock finds its 20-day and 50-day moving averages, as well as the 61.8% retracement.

Truthfully, I don’t love buying the dip in weaker stocks -- I prefer to do that with strong stocks in strong uptrends. However, those that favor Baidu on the long side do have a reasonable risk/reward post-earnings setup.