Baidu Inc. (BIDU) shares opened lower in NY following the Cyberspace Administration of China’s statement that highlighted that Baidu’s search results misled users and that would need to make it clear when posts have been paid for. Baidu was also told they would need review medical advertising. Earlier this year, Baidu came under scrutiny after allowing health-care companies to monitor health forums in exchange for cash. The company responded by stating they will rectify the problems found by regulators and that they will restrict the number of sponsored posts to 30% of a results page and establish a billion yuan fund to fight fraud.
The company received cautious comments from 86Research, a boutique equity research firm registered in Hong Kong. The firm sees the new rules from CAC possibly hurting revenue.
Price action on the Baidu daily chart show a daily close below all three key (200-, 100- and 50-day) SMAs. The selloff may not find major support until the psychological $160.00 handle. It is around that area that price could form a bullish ABCD pattern. Point D is targeted with the 261.8% Fibonacci expansion level of the B to C leg.
If the bullish pattern is invalidated, major support will come from the $140.00 handle.
The Trade: Buy BIDU at $158.50, with a stop loss at $153.50 and a take profit at $179.50. The Risk/Reward Ratio is 1:3