Another Strike to the Shorts

Sort of funny to watch how the market “works” as Google (GOOG) reported it was considering pulling out of China last night due to cyber attacks. This did not move the needle on Baidu (BIDU) at all, but once the morning premarket session began, Baidu jumped a bit and then the momentum players jumped in and as we speak the stock is up over 16% in premarket. At this point the Google pullout would be speculation more than anything but let that not stop us from making money.

In an unexpected turnaround, Google said late Tuesday that it would stop censoring its search results in China — and may pull out of the country entirely — after a series of cyber attacks originating in the country against human rights activists and U.S. companies. Google is only allowed to operate in China under rules that keep certain pornographic and politically sensitive material out of its search results.

Pulling out would not take a very big bite out of the company’s earnings, but it could leave much more room for its rivals in a growing market. Google does not have the dominant hold on the search business in China that it does in the U.S., but it’s got a sizeable chunk, handling about 29 percent of search queries there, according to Analysys International. processes about 62 percent of search results in China. (emphasis added)

More via CBSMarketwatch:

Drummond wrote that Google was one of several large companies targeted by a “highly sophisticated” attack on its infrastructure, which originated in China, last month. “We have evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human-rights activists,” Drummond wrote.

Moreover, Drummond wrote that Google has subsequently discovered that dozens of Gmail accounts held by advocates of human rights in China have been “routinely accessed by third parties.”

“These attacks and the surveillance they have uncovered — combined with the attempts over the past year to further limit free speech on the Web — have led us to conclude that we should review the feasibility of our business operations in China,” Drummond wrote.

Drummond wrote on Tuesday that, “We have decided we are no longer willing to continue censoring our results on, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all.”

The Mountain View, Calif.-based company said it plans to discuss the matter with Chinese officials to see if the issue can be resolved.

Another strike to the shorts, who based on the chart at least had a good case against Baidu in the near term – in fact the stock fell below the $395 level we deemed key for the stock to not take further damage yesterday. But this morning the stock sits at $450 premarket as technical analysis is useless when news events hit. Poor souls.

Disclosure: No position

About Mark Hanna 542 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

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