[Warrant Perspective] Baidu (09888) Narrows Volatility Awaiting Change? Short-term Oversold Rebound

Hello everyone, today (February 5), the Chinese stock Baidu (09888) showed a significant rise in the morning, surging to as high as HKD 140.5, with an increase of over 1%. As of the midday break, it is currently trading at HKD 138.5, with a significantly amplified turnover nearing HKD 1.32 billion, indicating active trading. However, there seems to be a slight 'high open, low close' pattern, dropping from the 140 level back down, now struggling around the 138 mark. Observing this, it appears some funds are attempting a push, but resistance above (in the range of HKD 148 to 155) is quite substantial, making the upward momentum somewhat weak. What do you think about this morning's rally? Do you see it as major players testing and collecting shares or just a technical rebound that will fizzle out? Has anyone already sold off their holdings at higher levels, or instead, do they see it as a precursor to a breakout and added more positions?

From a technical analysis perspective, the picture shows some contradictory yet interesting signals. The overall technical indicators are giving a 'buy' signal with a strength of 8, which seems fairly optimistic. Many indicators like Stochastic Oscillator and CCI indicate that the stock is in an oversold condition, suggesting room for a technical rebound. However, looking closely at other data, the current price remains notably below the MA10 (around HKD 149.84) and MA30 (about HKD 143.59), reflecting that the short-to-medium term trend is still downward. The RSI is at 43, showing neutral weakness. The ADX indicator is neutral, but the Momentum Oscillator indicates a sell signal. In such a situation, how would you interpret this kind of divergence where the summary suggests optimism while the trend remains downward?

On a practical level, support and resistance levels are crucial. Currently, the first support level is seen at HKD 132.3, and the second support level is at HKD 121.6. If it breaks below HKD 132, downside pressure could intensify. On the upside, the primary resistance is at HKD 148, with major resistance at HKD 155.1. The stock needs a strong rebound of over 7% to reach the first resistance, which is no small feat. The probability of an upward movement is 53%, only slightly leaning upwards, so confidence isn't very strong. If you're bullish on its rebound, would you choose to buy at the current price, or would you prefer to wait until it breaks through a certain technical level (e.g., MA10) to confirm a strengthening before chasing?

In reviewing product performance, at the end of last month (January 30), when the market was bearish and underlying stocks were retreating, several bear contracts and put warrants mentioned performed exceptionally well. For instance, HSBC Bear Contract 60847 and Morley Bear Contract 61113 saw increases of 49% and 44%, respectively, four days later, while UBS Group Put Warrant 24276 and Bank of China Put Warrant 24326 also rose by 27-28%. This shows that in a clear downtrend, bearish tools can have strong explosive power. Now it’s time for those looking to bet on a rebound—what options are available?

In terms of CBBCs (Callable Bull/Bear Contracts) and warrants, this time there is a richer selection of products, both bullish and bearish. If you believe Baidu has been oversold and want to bet on a rebound, there are two call warrants worth considering:

Macquarie Call Warrant 24096 $MSBAIDU@EC2604B.C (24096.HK)$ : Leverage of approximately 6.5 times, strike price at HKD 148.98, with the main feature being relatively lower premium, and a closer breakeven point.

BNP Paribas Call Warrant 29416: Leverage of about 6.4 times, strike price at HKD 148.88, major selling point is the lowest implied volatility combined with high leverage, potentially offering a cost advantage.

If you wish to use Bull Contracts to chase a rebound, the leverage is even higher:

Societe Generale Bull Contract 65837 and UBS Group Bull Contract 66356 $UB#BAIDURC2612H.C (66356.HK)$ : Both offer an effective leverage of about 15.2 times, with the same stop-loss level of HKD 130; the latter has the lowest premium.

If you continue to be bearish and believe that the rebound will be weak, there are Put Warrants and Bear Contracts available as options:

Bank of China Put Warrant 24326 $BIBAIDU@EP2607B.P (24326.HK)$ (Leverage 3.1 times) and UBS Group Put Warrant 24276 (Leverage 3.2 times): Strike prices are both at HKD 131.7, with the former having the highest leverage and the latter featuring a lower premium.

UBS Group Bear Contract 55661 and Macquarie Bear Contract 55130 $MS#BAIDURP2612C.P (55130.HK)$The recovery prices are 155 yuan and 156 yuan respectively, with the former having the lowest premium and the latter offering the highest actual leverage (approximately 6.4 times).

Faced with so many choices, what would your strategy be? If you're betting on a rebound, would you choose a bull certificate with high leverage or a call warrant with relatively limited risk? If you continue to be bearish, do you find the risk-return ratio of bear certificates or put warrants more attractive? In a volatile market, how do you balance leverage with recovery risk? Feel free to share how you formulate strategies amidst chaotic market conditions so we can exchange insights!

This article does not constitute any investment advice.

This article is for reference only and does not constitute any investment advice. The market data, opinions, and analysis contained herein may change at any time without prior notice. We are not responsible for any loss or damage caused by reliance on the information in this article. Technical analysis only shows whether certain technical conditions are met; a comprehensive assessment of asset performance should be conducted using additional data. Decisions to trade should not be based solely on this article. Please note that past performance is not indicative of future results.

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