One of the worst performing stocks on my board yesterday was QIHU, down 9.5%. The company actually beat both earnings and revenues estimates, but expectations among traders was higher still. Guidance was actually better than expected too, but by a slimmer margin than in the past, and the stock was hit hard after the open.
Like other momentum leaders, Chinese internet stocks have come under pressure in the past month, no matter the news. More than anything, market participants look to be searching for a reason to lighten up on big year-to-date winners like QIHU (still up 164% in 2013). The stock has actually been under distribution for several months, after a huge run from April to September. Yesterday’s selling brought it back to the lower end of its 3 month range:
Other momentum names with similar-looking charts to QIHU broke down recently, most notably FB and YELP both breaking important support on above-average volume yesterday. QIHU has behaved better, and I would rather own QIHU over the next 2-3 years than FB or YELP, but the short-term technical pattern indicates a precarious psychology if the stock breaks the $75 support level.
SINA is another stock that sports a similar pattern, with the stock hanging out just above important support after months of distribution:
Interestingly, BIDU, which was one of the weaker Chinese internet stocks in the first half of 2013, has behaved the best on the recent bout of selling. The stock is still above its rising 50 day moving average, though one concern is that BIDU’s breakout to a new all-time high in the past month failed on several occasions:
Of course, the long-term viability of the Chinese internet thesis has not suddenly changed over the past few months. As we’ve noted in posts in June and in October, the secular growth story for Chinese net stocks is expected to continue for the next decade. However, the persistent uptrends of the past 6 months are over, likely implying a rockier ride for those participants with time frames managed in weeks or months rather than years.