BAIDU and BoA 8217 s Fortunes

Baidu (BIDU), China’s largest search engine makes the news—-not because it is releasing earnings soon–but because it gapped more than $5.00 today after announcing the purchase of 91 Wireless, the nation’s most popular 3^rd party seller of smartphones apps.

Despite its position as the leader in searches in the world’s biggest market, Bidu’s venture into mobile was never convincing. The windfall profits resulting from Google’s withdrawal from China did not last as local competitors emerged. This explained the 40% decline in its share price since peaking two years ago. But with over 10 billion apps downloaded on 91Wireless stores, Baidu may convince why it paid $1.09 bn for a 57% stake.

As the headlines from China’s slowing GDP and stressed local banks dominate the news, it is worth taking a look at Baidu’s chart. The break above the 13-month channel, is apt to extend towards the 24-month channel, with a preliminary goal of $118.00. The simultaneous breach above the 55 and 200-week MAs, draws us to the next barrier at 114.00—the 100-WMA. Support must hold at 97.00 in order for the rally to hold.

Bank of America (BAC), releases earnings on Wednesday before the NY opening bell while attempting to release the stigma of its losses at the height of the financial crisis. Q2 earnings are expected at $0.26/share from $0.17/share in Q1 and revenues are expected at $22.7 bn from $23.8 bn.

BAC’s dependence on the fortunes of the US housing market is clear. The US National Association of Homebuilders sentiment index hit 7-year highs, up 61% over the last year, new home sales at 5-year highs and existing home sales at 4-year highs. BAC’s share price more than doubled over the past 12 months hitting $13.8. And while mortgage originations have fallen recently, the outlook (found in the banks’ guidance) shall depend on prospects for future sales and loan originations. Traders will also be looking at the extent to which BAC’s reduced its loan-loss reserves and their contribution to earnings.

Pressure on BAC has especially escalated after strong results from Citigroup, Wells Fargo and JP Morgan. But BAC’s plan to increase its share of the mortgage market is its biggest opportunity to move forward. Anything upward of 15% is deemed robust by this season’s standard.

BAC’s technicals reveal some short term sluggishness, suggesting support underlined at the 200-DMA of $11.60.  But as we move into the longer term, the break above $14.00 is the initial barrier to add on to the latest 52-week high. As the Fed communicates the willingness to taper purchases without disrupting overall liquidity, a steeper yield curve could improve BAC’s foothold in housing and make $18.00 the next viable target.