Awaiting Retail / Fed, Market Rises On Anemic Volume; Stock of Day – Baidu.com (BIDU)

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

The big run today seemed to come out of left field considering on Friday we had some distribution and a breach of some key support levels.  In the absence of any major credit/housing/subprime concerns, the market chose to focus on a few positives today in the narrowing of the deficit and some good sales numbers out of McDonalds.  On the surface it looked to be a big bullish day, but considering volume was anemic once again, we can’t take too much from today’s action.  The major indices have basically just pushed back up to near their resistance levels.  We can probably expect more light volume trading in the coming days as the market holds its breath for Friday’s retail numbers, all that overseas commercial paper coming up for renewal and then the big Fed rate decision next Tuesday.  It’s absolutely anyone’s guess as to which way this market will swing over the next week or so.  Combine the high emotions and the Fed uncertainty and it really remains a difficult environment to make money on EITHER side.  I still recommend that most people stay the heck out of this market until several days after the Fed decision, possibly longer.

::: Major Indices Performance – The Numbers :::

(Note: volume averages are based on the average over the past 50 days)
Data as of 4:00EST – End of Day September 11th 2007

Nasdaq: UP 1.5% today with volume 10% BELOW  average
Nasdaq ETF (QQQQ) UP 1.51%, volume 30% BELOW average
Dow: UP 1.38%, with volume 15% BELOW the average
Dow ETF (DIA): UP 1.26%, volume 41% BELOW the average
S&P ETF (SPY): UP 1.17%, volume 28% BELOW the average
Russell Small Cap ETF (IWM): UP 1.59%, volume 29% BELOW the average

::: SelflInvestors Leading Stocks :::

The Self Investors Leading Stocks Index is comprised of stocks in the Breakout Tracker, which is a database of the fastest growing companies near a breakout or having already broken out of a base.  Leading stocks did about as well as could be expected today – about in line with what the Russell 2000 did.  Again, no volume behind the rise in leading stocks today.

Summary:

* Advancers led Decliners 253 to 45
* Advancers were up an average of 2.19% today, with volume 21% BELOW average
* Decliners were down an average of 1.59% with volume 8% ABOVE average
* The total SI Leading Stocks Index was UP 1.61% today with volume 17% BELOW average

::: Where’s the Money Flowing :::

Many investing websites provide leading industries based on price performance alone. However, without accompanying volume levels, this can sometimes be misleading.  The only way that I know of to gauge industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for gauging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash.  For a detailed look at how I go about gauging sector/industry strength please see the following post: http://selfinvestors.com/si/industry_tracking/

* Current Leading Sectors/Industries (over last 30 trading days):  
Gold, Biotech, Networking, Technology, Aerospace/Defense
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Retail, Consumer Discretionary, Transports

* Today’s Market Moving Industries/Sectors (UP):
Gold Miners, Retail, Telecom, Real Estate, Energy

* Today’s Market Moving Industries/Sectors (DOWN):
NO big down movers today.

::: Stocks :::

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average and most likely breaking out of a base or consolidation.  Today’s stock is Baidu.com (BIDU) which just continues to defy gravity.

ABOUT: 

Baidu.com, Inc. (Baidu) is a Chinese-language Internet search provider. The Company conducts its operations principally through Baidu Online, its wholly owned subsidiary in Beijing, the People’s Republic of China. In addition, it conducts part of its operations through Baidu Netcom, a limited liability company in Beijing, the People’s Republic of China, which holds the licenses and approvals necessary to operate Baidu’s Websites and provide online advertising services. Baidu offers a Chinese-language search platform, which consists of its Websites and certain online application software, as well as Baidu Union, which is its network of third-party Websites and software applications. It primarily provides Chinese language Internet search services to enable users to find information online, including Web pages, news, images and multimedia files, through links provided on its Websites. In April 2006, the Company established Baidu Times, a wholly owned subsidiary in Beijing.

FUNDAMENTALS: 

Since posting its first profitable year in 2004, Baidu has been a company on an extraordinary growth path, with a near tripling of profits in 2005 and then quadrupling profits in 2006.  It’s not possible to sustain that kind of growth and it has moderated some but the company is still expected to post earnings growth of 75% this year and then again in 2008.  Both net margins (37%) and return on equity (32%) have spiked considerably higher in the last year.  One key characteristic that I look for in big winners are accelerating margins and ROE and Baidu certainly fits the bill.  This all adds up to a near perfect 29/30 fundamental ranking in the SelfInvestors.com database.

TECHNICAL:  

BIDU broke out of a base today with decent volume to a new all time high.  This in and of itself is very bullish action, but the base itself is a bit poorly formed.  Considering the run it’s had since first breaking out in May, I’d like to see a longer consolidation.  The current base is not quite 8 weeks old and the formation is a fairly sharp V like pattern.  These patterns can work and if any stock can continue vaulting from a less than perfect base it’s BIDU, but I’m taking a cautious approach considering the shaky base and the uncertain overall market.  I’m adding a very small position on the breakout and will look to add more on a successful test and bounce off the 50 day moving average.

SELFINVESTORS RATING: With a total score of 52/60 (29/30 for fundamentals, 23/30 for technical), Baidu.com (BIDU) has been and continues to be a top breakout stock.

Full Disclosure/Disclaimer: The stock of the day is by no means a buy recommendation.  Please do your own research and make a personal decision based on your own tolerance for risk.  I currently own a small position in BIDU and will be looking to add a little more when this pullback is complete.

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