Shares in Chinese internet search engine provider Baidu Inc. ADR (BIDU US) dropped 1.7% yesterday as the firm cut its 2nd quarter sales estimate from $3.12/$3.19 billion to $2.81/$2.82 billion because of regulatory constraints on the paid of link advertising they could accept, specifically in the health care field. Baidu is down 15% year to date.
Short interest in Baidu has dropped significantly from the 4th quarter 2015 when balances ranged from $1.5 to $1.9 billion. Short interest quickly dropped below $1 billion by February 2016 and fell to year to date lows of $768 million in mid-May, a drop of 49% since the end of 2015.
In the wake of the investigations which brought about advertising constraints, short sellers quickly jumped back in the pool and doubled Baidu’s short interest. From mid-May to mid-June short sellers added $775 million of Baidu shorts to their portfolios, increasing their short exposure by 101% in just four weeks.
Baidu short interest is now over $1.5 billion, the highest level in 2016. S3’s Velocity Indicator shows Baidu’s 7 Day trend aggressively crossing both the 30 Day and 90 Day trend lines on the 24th and 25th of May, giving us an indication that short term negative conviction in Baidu is very high. We are also seeing the 30 Day trend line rising steadily, indicating that the negative conviction is building a strong support base and is not a one event blip in activity.
For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC
Ihor.Dusaniwsky@S3Partners.net
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