With a strong earnings report yesterday Baidu surpassed analysts’ expectations but seemingly didn’t surprise investors. Despite beating on the top line by 4c, revenues by a small margin and guiding revenues up for the next quarter, the stock was a relative laggard today. Revenues growth of 74% over the last year was still exceptionally strong for a company of this market capitalization.

The total Chinese search market grew by 53.2% in the second quarter alone, which seems to attribute massively to the revenues jump of Baidu’s latest quarter. Only the second reason was the decreasing competition from Google.

During the last 6 month Google lost 5.5% market share of the Chinese search market down from 32.8% and Baidu gained 6% over the 64.8% it had at the end of 2009. Due to Google’s semi-exit in the Chinese search business, Baidu was able to abruptly reverse the longstanding trend of the years before, where Google ate slowly but steadily into Baidu’s market share. For comparison here is the long term chart of GOOG since its IPO.

Google seems to be already a mature company, while Baidu’s fundamentals are still shooting up. But after the hesitance BIDU showed today to reward investors for this phenomenal quarter with an exploding price, my conclusion is still the same: For Baidu it is probably better to wait for a breakout of the base in the long term trend and Google is the inferior investment compared to Baidu.

After the close yesterday Apple reported a strong quarter. Visible in this weekly chart, the first two quarters of this year didn’t fall back from the Christmas sales peak (blue – revenues, pink – earnings). Apple ignited the afterburner.

The Cupertino company is already the tech vision leader and will soon surpass Microsoft with regard to revenues. Especially astonishing was their revenues guide for the next quarter. Apple used to play it safe and predict only a modest outlook. This time they seem to expect sales far above analysts consensus.

Either they want to color the negative headlines of Antennagate more positively and convert them into free advertising. Or the iPad sales were constrained this quarter mainly by supply and not demand and they expect the situation to improve. If it is the latter, Cirrus Logic may even be the better investment or trading vehicle.

CRUS follows Apple’s stock more closely on an intraday basis than justified by fundamental data. In the longer run it shows relative strength compared to AAPL. The market seems to expect a bull run in “gadget chips” for the next years.

Directly after the earnings report of Cirrus Logic this morning the stock didn’t react much. It was down with the whole market and with Apple. The correlation of Cirrus’ and Apple’s stock is remarkable. Cirrus’ rally today was more attributable to the move of AAPL ahead of Apple’s earnings release after the market closed than anything else.

Cirrus Logic beat by a penny and guided revenues for the next quarter up. The weekly chart demonstrates that this company is on the move these days.

The pink earnings line shows something else, namely a relatively small PE ratio (15 for the latest quarterly results extrapolated to a full year). The market still fears the cyclical semiconductor nature of this stock and is not willing to let its price shoot up more. Should the smart phone and tablet computer craze continue and Cirrus be profiting from it, Mr. Market may finally change its stance on this.

The chart above of the last 9 years shows clearly that CRUS used to be a cyclical stock. However, the rise of the blue revenues line and the driving growth prospects behind it are encouraging. Eventually this is a semiconductor stock and it will regain its cyclical character, but there is potential for an intermediate growth ride.

With starting the category “System” of this blog, I am going to give you a short overview about quoTrader’s trading philosophy.

People seem to understand very different things when it comes to trading systems. Some main interpretations go like this:

1. A formula or an algorithm that puts all trading decisions at its best completely into the hands of a computer, in order to build the most automated trading robot.
2. A simple but ingenious trading trick or piece of knowledge that gives its user an advantage, to which all trading behavior than could be adapted.
3. A complex description of how to become a better trader or investor.

The first route is the enticing one. Nothing more to be done and the money keeps on rolling in. It looks logical, because you just have to explore the universe of all possible trading methods, possibly again with the help of a computer, and then you have something all others don’t have. This secret is a relatively simple algorithm and as such it can be transformed easily into a program.

So far so good, there is just a little problem. If there is indeed a secret trading strategy, made up of a few parameters of a simple program, it will not remain very long secret. There are large trading houses, creative and hard working programmers, and similar wizards who search with tremendous effort the markets for such auto-traders. Very soon too many exploiters of this regularity will smooth it away. This approach is in my opinion more wishful thinking than anything else.

The second idea, looking for the trading trick, is not much better. It is merely a clone of its predecessor in this little abstract list of trading systems, just without the computerization aspect.

Naturally we arrive at item number three, the one that is not the magic bullet and that still sounds like much work and risk of failure. Right! Think about it, if you expected it to be easier, you will eventually find that a market consisting of many smart participants inherently means the opposite. Making money with trading and investing can’t be as easy as hoped by admirers of the first two magic money ways.

Consequently the quoTrader system is only a type 3 trading system. It tries to embrace some powerful trading patterns, but it concentrates on the individual trader who has to apply these in varying market situations, executing a trading strategy so that it actually works. So far I have not been able to create the magic bullet system consisting of a very few mechanical things.

In order to make it better understandable what is wrong with the first two approaches, I plan in the category ”System” to introduce various great traders, interesting trading systems and also pieces of them like type 2 trading methods and compare all these with the quoTrader system.

On Thursday Google presented its quarterly earnings. It disappointed expectations at the bottom line and only beat a bit on the revenues side. The stock went down in after-hours trading and during the next day. The year-over-year growth looked good at a quick glance, but as the blue revenues curve of the long term chart shows, it came partly from the dip during the financial crisis.

Google is since two years a slower growing company and since more than four years its stock price didn’t move substantially. If we look at the market cap of 146B, this is no big surprise either. Something like a few hundred billion dollars seems to be a wall for companies, at least in this era.

Compared to Baidu, Google is clearly the less interesting investment and trading target.

Yesterday Apple got hit by news that a prominent consumer organization recommended to skip the iPhone 4 because of its faulty hardware. In their eternal search for the coolest appliance Apple seemed to have found a phone that does not work anymore as such. Really cool. Anyway, what I want to show here is the linkage between Apple’s and Cirrus’ stock:

The top chart is from CRUS and at the bottom we have AAPL. Yesterday the market was way up, but AAPL dipped and CRUS was also relatively weak. But overall CRUS shows a hefty relative strength compared to AAPL. Both react of course to the whole market with Apple being at least relatively strong against that benchmark.

So far CRUS is nicely up since my last post about the gadget mania. Earnings will be reported next week on 7/20 before the market opens. Hopefully the new era of small and cool hardware will propel it even more into the sky – to the place where it belongs.

This morning Baidu takes a hit premarket and Google jumps up, because Google’s license for operating a web site in China has just been renewed. Looking at Google’s weekly chart reveals that the stock has been a laggard compared with the indices over the past months. The main reason has been the problem with the Chinese authorities, but there were also other clouds visible on the horizon.

Baidu’s chart shows that the stock has risen 6-fold over the last 18 month. Given the news today, the price could have exhausted its shorter term potential for now. So, GOOG has perhaps some snap-back potential, but isn’t at a high, while BIDU is at a high, but seems also to be expensive, at least in the short run.

Pricewise this is the classical situation, which leads so many to believe that the stock that fell back is the better investment candidate. Wrong, at least generally. In this case, however, there is new information involved. Google’s prospects in China don’t seem to be so dim as many have argued in the past.

Conversely there is still a risk that Baidu gets crushed by Google in the long run. It was the perceived elimination of this risk that made the stock run up so much, and not only the possible gain of Google’s current market share of web search in China.

Conclusion: For Baidu it seems better to wait for a real breakout of the base in a trend formation. Google may have some short term potential right now, but its growth also slowed down considerably since two years.