BIDU Tested the 200 EDMA today.

Baidu (BIDU) tested the 200 EDMA at $93.87 today and bounced off of that strong support level and ended the day at $97.37. A retest of that level will be coming shortly and will determine if the stock will find support or break down. As I have said many times, I do not think that the 200 EDMA will hold in this market condition. I have a sneaking suspicion that the new ceiling will be the $100 level and anything above $98 would be a good short entry point.

If you are contemplating shorting the market, the safer way to do it would be with put options rather than borrowing the common as it is customary. There are two definitive advantages and one major disadvantage of using options for these purposes. The advantage is that you limit your down side even if the stock runs away from you when you are wrong. The second is the tremendous leverage that you gain as opposed to borrowing the common stock. The major disadvantage is time decay issue or theta. Remember options are considered depreciating asset and can be very risky, so consider all facts before doing this. I have always harped on the prudence of going to cash during market correction. As always, capital preservation is always a winning strategy.

Back to Baidu (BIDU). I see that Google has gained some traction lately in the Chinese search market. It would be a bad policy to bet against Google, even if BIDU is the native company for internet search. Their abysmal advertising base should shrink even further as evidenced by their recent conference call (which in itself was abysmal). Their foray into the Japanese market is ill timed and deep down reveals the company's lack of conviction in the Chinese market place despite BIDU's position that China is a rapidly growing market. Those two moves does not make sense for three reasons. Culturally, Chinese and Japanese (add Koreans for that matter) cultures have major apathy for one another. It would be difficult to really appreciate the superiority factor that the Japanese have over their Asian counter parts (sad to say) but also the animosity for the war atrocities during world war II and prior issues still exists. The Japanese search engine of choice currently is Yahoo and Google is dilligently establishing presence at that market right now. BIDU is basically a bad copy of Google and offers no competitive advantage over either Yahoo or Google.

I would like to put to rest some rumors surrounding Baidu (BIDU) might be bought out by Google. I do not think that is true. If that were true, Google would not have divested its ownership shares in BIDU. Additionally, there is no competitive advantage that Google can gain by this merger because eventually, Google will do it better than BIDU. I think the most likely scenario is that the competing search engines will merge in China to better compete against Google and Yahoo.

Good luck.