Friday, March 26, 2010

Google & Baidu: A Tale of Two Tech Stocks (3-26-10 Close)

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Google & Baidu



Overview
Google's censorship conflict with China has recently beat down the Google stock price, but has benefited Baidu tremendously. Baidu has the largest search engine market share in China and stands to gain the most from this controversy. Accordingly, as Google stock has decreased, Baidu stock has increased. I'll review both stocks and comment on the price action.

Price Earnings Ratio
As noted by Investors.com on Wednesay, Google was trading at a PE of 19 projected 2010 earnings and Baidu was at 63.  Google is expected to beat Q1 estimates, so the short-term is good, probably very good. Of course, it's the long-term outlook that is dampened by the Chinese issue. The question is how much investors will discount Google's PE and I think the bottom is in. Google's PE TTM is about 27, while Baidu's TTM PE is 95.


Google: Is The Bottom In?


Overview
GOOG is up +0.48% for the week, up +6.81% for the month, down -9.24% for the year, and up +93.44% since the March 9, 2009 market bottom. Googzilla has pulled back from the MTD closing high of 581.14 on Thursday, March 11 but has risen above the Tuesday, March 23 closing low this week of 549.00 from the China Beat Down. The censorship conflict with China, and high probability of leaving the huge Chinese market, has damaged the stock price. Actually, GOOG's short-term operating performance is expected to be very good, exceeding Q1 estimates. Of course, it's the long-term outlook, with the seeming loss of the Chinese market, that is of concern.

Google Daily Chart
Below is the GOOG daily chart from mid October 2009 through the March 26, 2010 current close.

Noteworthy Closing Prices on daily chart below:
Current 562.69 (Third highest yellow horizontal line)
2010 YTD 1-4-10 High 626.75 (Highest yellow horizontal line)
YE 12-31-09 619.98 (Second highest yellow horizontal line)
10 Month EMA 519.18 (Lowest yellow horizontal line)


GOOG: Support Has Held




Intermediate-Term Trend
The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, flipped to an intermediate-term bull market Wednesday, March 24. A bear market signal had been effect since February 1 for GOOG. That is, the 25d sma is now more than the 50d sma. For all the ups, down, and consolidations in 2010, GOOG is sustaining at a reasonable price - all things considered.

Support
Solid support has been very important for GOOG during this China Beat Down - and support has held.  GOOG has now risen above October 2009 trading range, which was recent support that held this week, along with long-term support that held from back in April through July 2008. GOOG is now in consolidation trading of early and mid March.  GOOG is also still above the long-term support trading range of April through July 2008.

Resistance
The current price is well below the January 4, 2010 closing high and the 12-31-09 YE close, both now important recent resistance and benchmark prices. GOOG is below the stair stepping November 2009 highs, which are also resistance. The price is now reaching the March 5-19 trading range, including some consolidation trading - this is the resistance to stay in and rise above.  GOOG is also just below the June 2008 trading area, which is long-term resistance.

Moving Averages
The 25d sma bottomed on March 1 and is ascending.  The 50d, continues descending. The 100d sma has leveled off.  The 200d sma continues ascending. Most bothersome was the 25d sma breaking down through the 50d and 100d sma's plus the 50d sma breaking down through the 100d sma on March 4.. The 25d sma has now regained the 50d sma, as noted above. GOOG has regained both the 25d and 50d sma's, but is still below the 100d sma during this China Beat Down.

Uptrend Line
The uptrend line, a rate of price ascent, is from the November 24, 2008 closing low of 257.44 up through the February 25, 2010 closing low of 526.43. The February 25 closing low has been the bottom of the 2010 pullback to date. GOOG has stayed above this uptrend line since the next day, February 26 - but - almost pinned it on Tuesday, March 23 at the bottom of the trading day before rallyiing and did in fact pin rhtough this uptrend line on Wednesday, March 24, before rallying once again.

Downtrend Line
The downtrend line, a rate of price descent, is from appoximately the November 6, 2007 all-time closing high of 741.79 down through the January 4, 2010 high of 626.75, the peak YTD closing high so far. GOOG continues well below this downtrend line.

Relative Strength Index (RSI)
RSI 14 day = 50.14 is reasonable, neutral; has dropped from lower 70s earlier in March
RSI 28 day = 57.41 is reasonable, neutral; has dropped from mid to upper 60s earlier in March
The RSIs can drop a lot more, of course, but oversold conditions were beginning to develop before GOOG found support and bounced up.

MACD (12,26,9)
The MACD became bearish on Tuesday, March 23. The MACD had been bullish since February 11.

Long-Term Trend
The lowest horizontal yellow line is the 10 month exponential moving average from the monthly chart, which I have overlayed on this daily chart. That is the line in the sand, so to speak, for the long term signal of a bear market. GOOG is above this signal at the current close, the third highest yellow horizontal line.

Conclusion
Is the China Beat Down over for GOOG? GOOG is surviving! As noted above, GOOG actually ended up +2.69 and +0.48% for the week!  Both recent and long-term support held and an upward bounce ensued off the low of March 23, with good volume. The RSI 14 day and 28 day are reasonable in the 50s.  The MACD did signal sell on Tuesday, March 23. GOOG's problem is the censorship dispute with China and potentially being banned from world's largest Internet market. The 2010 YTD lows in the 530 or lower area could possibly be tested. However, as I noted in the last post, I personally believe this won't happen and that the China Beat Down is about over. That is, the potential loss of the Chinese market is mostly priced in. If China does throw Google out, another dip is possible and then the bottom would be in. The intermediate-term trend is now bullish. The long-term trend remains bullish. The China story continues...


Baidu: Below All-Time High


Overview
As GOOG pulled back on the China censorship conflict, BIDU skyrocketed.  BIDU is up +4.69% for the week, up +14.98% for the month, up +45.02% for the year, and up +284.56% since the March 9, 2009 market bottom. "Skyrocket" seems an appropriate description, lol.

Baidu Daily Chart
Below is the BIDU daily chart for 2010.

Noteworthy Closing Prices on daily chart below:
Current 596.37 (Highest yellow horizontal line)
All-Time High 3-24-10 608.50
Previous 2010 YTD 1-15-10 High Before Pullback 467.68 (Second highest yellow horizontal line)
YE 12-31-09 411.23 (Lowest yellow horizontal line)
10 Month EMA 423.75 (Third highest yellow horizontal line)


BIDU: Suprisingly Below $600




Intermediate-Term Trend
The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, indicates an ongoing bull market since February 5 for BIDU. That is, the 25d sma is more than the 50d sma.

Resistance and Support
The current closing price, the highest yellow horizontal line, is just below the all-time closing high of 608.50 of Wednesday, March 24.  This is the only short-term resistance and there is no long-term resistance.  There is much significant support below.

Moving Averages
The 25d, 50d, 100d, and 200d sma''s are in a classic bull pattern of a rapidly rising stock: fanned out and ascending rapidly. Life is good for BIDU stockholders!

Uptrend Line
The uptrend line, a rate of price ascent, is from the December 10, 2008 closing low of 104.54 up through the January 12, 2010 closing low of 386.49. The January 12 closing low was the bottom of the 2010 pullback.
BIDU has well above this uptrend line since the next day, January 13.

Downtrend Line
There is no downtrend line, a rate of price descent, of any significance, because BIDU has been below the all-time high for just two days.

Relative Strength Index (RSI)
RSI 14 day = 74.39 is overbought, as expected; but below 80s earlier this week
RSI 28 day = 76.12 is overbought, as expected; but below 80s earlier this week
The RSIs are high, but lower than earlier in the week.

MACD (12,26,9)
The MACD is bullish and has been since February 3.

Long-Term Trend
The third highest horizontal yellow line is the 10 month exponential moving average from the monthly chart, which I have overlayed on this daily chart. That is the line in the sand, so to speak, for the long term signal of a bear market. BIDU is well above this signal at the current close, the highest yellow horizontal line.

Conclusion
BIDU peaked at the all-time high of 608.50 on Wednesday, March 24 and has pulled back below 600.  Analysts are setting price targets of 650, 675, 690 created a bull frenzy! China now has 384 million online users and expects to exceed 500 million users in 2-3 years per a recent news article. BIDU is in a prime position to capitalize on this almost incomprehensible growth. BIDU is already the leading search engine in China with an estimated 65% market share, that could go to 90% sans Google! So, there is more upside to BIDU short, intermediate, and long term, unless somehow Google stays in China and can compete effectively. Either way, BIDU has a great future.

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Seeking Alpha