A reader emailed me and asked me what I thought of Baidu.com (BIDU). If I were an investor I would say BIDU is a good buy here, well of it's highs. But as short-term traders we must evaluate our entries and exits. Looking at the 3 month chart below we can see the $281-282 was a highly contested area of resistance that we recently broke. After making a strong rally just a touch over $300 we then returned to $280 where we saw some bounce. As a trader I do not want to purchase this stock here. Why? Because the risk/reward is not in my favor. Sure, BIDU could explode higher tommorow and I would look like an idiot, however, it could also go the other way. I would rather enter BIDU at a price in which we are familiar with, $280. This does not mean that when BIDU is selling off and approaching $280 we buy it. Instead we would want to see BIDU consolidate towards $280ish and see it bounce on some good volume. This signals to me that the buyers are ready to defend $280. Similarly I know that sellers are likely to defend the $300 level as they have done so in the past. This gives me a potential $20 upside with little downside.
Looking at SPY we can see that $135 held today. Our former support, $136 is acting as resistance now. It is starting to look like this market is correcting through time, not price. If this is the case we will most likely see choppiness until the problems work themselves out.
Many readers have emailed me asking what went wrong with their trade. Most of the problems involve their time frame. When trading you must identify your time frame and establish entry and exit points with the time frame in mind. On the chart below I identified the short-term and intermediate supprot levels as well as the short-term trendline. I hope that helps. Please continue to email me your questions.