BIDU and FXI Going Separate Ways Today

Last week I detailed the components of the iShares FTSE/Xinhua China 25 Index (FXI), the ETF that began the day with a gain of 87% for 2007.

With year to date gains of 263% for the same calendar year, Baidu (BIDU), the internet search juggernaut occasionally referred to as ‘the Chinese Google’ appears to be playing a different game altogether – and in some respects it is. BIDU is not part of the FXI, but it has garnered considerable attention in the western press for its dominance in the Chinese search market. BIDU has also seemed to be impervious to the recent tech selloffs as well. This morning the stock even shook off the biggest drop in Hong Kong stocks since 9/11 as well as some negative commentary in Barrons (a preference for GOOG over BIDU) to turn a 9 point loss into a 12 point gain. While this is indeed an impressive performance, what is most impressive of all is that today’s price action in BIDU has come while the FXI has been struggling with a loss in the area of 7-10%.

All of which leads to the chart below. I have been speculating that many of the 240 points BIDU has tacked on since mid-August are at risk before the end of the year and now wonder whether the separation from FXI on the chart may not just be a visual jumping of the shark, but a metaphorical one as well. BIDU has printed several bull flags in the past few months that have proved to be pauses on the way up. If the stock continues up while the FXI heads back to earth, I will be looking to buy BIDU puts on the first sign of weakness.