An interesting tell in Baidu.com (BIDU) – let’s see how she reacts going forward. The stock amazingly had run to $360…. and then reversed 10% intraday and is now in the $320s. This last move has nothing to do with fundamentals as the stock has dissociated itself from reality. An analyst came out with a $400 price target not even 2 weeks ago, that price target was for year end… 2008!

And the stock went from $280 to $360 in a week and a half. I joked back then “I am sure the lemming… err investors… in Baidu.com think this $400 should hit by next week.”

Sadly I was almost dead on.

Right now this market is all about confidence. The fundamentals of the US economy are degrading. Financials report bad numbers, its ignored. Retailers report bad numbers its ignored. Layoffs announced, its ignored. Everything is ignored with the excuse of “it’s priced in”. So it is all confidence/psychology. This is what makes buying into this market hard at these levels. I mentioned earlier today I am having a hard time finding anything to buy, as on fundamentals everything is extended.

“To be blunt, there is very little on the long side to apply new cash too as every sector I like (but this one) has run up substantially – so I have an absolute dearth of new names that I want to apply cash to – heck I am looking at a China railroad at this point as the pickings are so slim out there.”

Technically its just momentum trading right now – even by the institutions. They are all piling into the same tired 20 names since they need to keep up with performance measures (if they lag the indexes they look bad). And since they are big cap names, they make the indexes go up every day. These stocks are so far away from any meaningful technical support than any drops will level them in a short time “WHEN” it happens. When is an open question. Eventually this has to reverse and once the first few leave the party, you will see a rush to the exits – but only in retrospect will it be easy to point to as a turning point.

So for now let’s look at Baidu – it represents all the major dreams and hopes of this market – China, internet, technology, unstoppable, just buy and forget about any valuation metric. Etc. If it falters it could cause some panic. Let’s see if it dares drop to $300 (or below). If not, its just back to business as usual. I am just troubled by this ‘consensus’ that it’s safe to buy until the end of 2007 and then we will “deal with the issues” at that point. As if on Jan 2, we will wake up from a drunken stupor and wonder what we just did? Just seems too neat and convenient.

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