For the second time this month, shares of Baidu.com, Inc. (BIDU) are challenging an important level. In past posts I have discussed the significance of this zone and so far it has proved a challenge. But there is an interesting twist to the story now. Here is a look into the situation...

Chart Courtesy of Thomson Financial

This chart is simply an updated version of the one we looked at last month (see link above.) At that time the stock was coming off the lower boundary of the range that has been in place since mid-January. The shares did go back and flirt with breaking below that support but quickly bounced back. This "fake-out" move was then followed by swift buying that pushed Baidu right to the upper boundary near 300.

The nature of trading ranges is that you "expect" to see buyers step in at the lower end and sellers to step in at the upper end. Some nimble traders like to play the bounces and drops from the ends. Other traders like to look for breakouts and breakdowns. Both approaches have their benefits and downfalls. I tend to be in the camp of looking for potential breakouts/breakdowns because the moves can be dramatic. However, what you have watch out for in that case are the fake outs.

Looking to the recent action of BIDU shows an interesting point to consider. As noted above, you "expect" to see sellers come in at the top of the range and that is what happened earlier this month as the stock first rallied into 300. However, the subsequent rejection was very mild. In other words, buyers have showed at least a bit of interest here. The other interesting point is the put/call ratio. As the chart to the right shows, the ratio has risen in the last month, suggesting skepticism has ticked up.

Or, said another way, few seem to betting on a breakout. In my experience, the breakouts tend to happen when no one is really expecting them. Keep an eye on how the stock acts here...