Baidu & Overinflated Bubble Pricing Lessons (BIDU, RIMM, GOOG, AMZN)

Baidu.com (NASDAQ:BIDU) is showing how vulnerable overinflated shares are when even a hint of bad news or "Less Good" news comes out.  A report out of JPMorgan deemed somewhat cautious is the culprit.  Now Baidu’s shares are DOWN OVER $50.00 FROM INTRADAY HIGHS.  These bubble stocks can rally and rally beyond what the valuations or fundamentals will merit.  If you were a trader in 1998 to 2000 you know that.  But when the air comes out it is one massive rush.  The NASDAQ was over 2,820 earlier, but now it is at 2,775 and the air is out at least for part of the day.

The Chinese stocks have made the endless runs like this before, only to give back huge percentages of losses.  VMWare (NYSE:VMW) is not Chinese, but it was making the same sort of gains.  VMware shares are now down over 5% and are down almost $14.00 from intraday highs.  Google (NASDAQ:GOOG) is also down $20.00 from its intraday highs.  Research-in-Motion (NASDAQ:RIMM) is now down some 8% on the day and down over $10.00 from intraday highs.  Amazon.com (NASDAQ:AMZN) shares are down 6% on the day. The list goes on and on.

The truth is that these stocks can swing back too.  But the lessons of the bubble every few years or so seem to get forgotten before the reminder of what can happen shows itself.  Sometimes the selling pressure is just profit taking, and sometimes it’s just selling because everyone else is selling.

Jon C. Ogg
October 11, 2007