Thursday, March 25, 2010

Google & Baidu: A Tale of Two Tech Stocks

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, Google is trading at a PE of 19 projected 2010 earnings and Baidu is at 63, after all this price action through Wednesday.  Google is also expected to beat Q1 estimates, so the short-term is 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 and Baidu's is 97.


Google: Down But Not Out


Overview
GOOG is down -0.48% for the week, up +5.80% for the month, down -10.11% for the year, and up +91.59% since the March 9, 2009 market bottom. Googzilla has pulled back from the MTD closing high of 581.14 on Thursday, March 11. 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.

Noteworthy Closing Prices on daily chart below:
Current 557.33 (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 518.20 (Lowest yellow horizontal line)


GOOG: Support Holding




Intermediate-Term Trend
The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, flipped to a intermediate-term bull market today, 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 is what is important for GOOG.  Yesterday, as I noted, the current close was in the October 2009 trading range, which was acting as recent support, along with long-term support back in April through July 2008. GOOG had found support yesterday, Tuesday, and bounced up late in the day.  On Wednesday, this support held, and GOOG is now just above the October 2009 highs, which hopefully will act as recent support.  GOOG is also still within the long-term support trading range of April through July 2008, which appears to be acting as strong support.

Resistance
Presently, resistance is not GOOG's problem.  The current price is below the January 4, 2010 closing high and the 12-31-09 YE close, both now recent resistance.  GOOG is below the stair stepping November 2009 highs, which are also resistance.  The price is also below the March 5-19 trading range, including some consolidation trading - this would be the resistance to reach and hold next.

Moving Averages
The 25d sma bottomed on March 1 and began ascending but is beginning to level off, not a good sign.. The 50d, continues descending. The 100d sma has leveled off but is about to begin descending.  The 200d sma continues ascending. Most bothersome has been 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 just 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 for 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 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 is well below this downtrend line.

Relative Strength Index (RSI)
RSI 14 day = 51.68 is reasonable, neutral; has dropped from lower 70s earlier in March
RSI 28 day = 56.97 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!  Yesterday, GOOG was on both recent and long-term support and did rally off the lows, March 23, with good volume. Today, GOOG gapped down at opening but yet again rallied later in the day and went green at the close with good volume.  The RSI 14 day and 28 day are reasonable and leveling off.  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: At All-Time High


Overview
As GOOG pulls back on the China censorship conflict, BIDU goes up.  BIDU is up +6.82% for the week, up +17.32% for the month, up +47.97% for the year, and up +292.38% since the March 9, 2009 market bottom. Up, up, and away!

Noteworthy Closing Prices on daily chart below:
Current 608.50 (Highest yellow horizontal line)
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 425.95 (Third highest yellow horizontal line)


BIDU: Up, Up, & Away!




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 now above any previous closing high, so there is no resistance above. BIDU is in uncharted terriorty, literally. 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, because BIDU is at an all-time high.

Relative Strength Index (RSI)
RSI 14 day = 84.48 is overbought, as expected; but below peak 89.29 on March 2
RSI 28 day = 82.58 is overbought, as expected; but below peak 84.55 on March 22
The RSIs are high, but may well go higher, as BIDU is being driven high on news and analysts' estimates.

MACD (12,26,9)
The MACD became bullish on 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 is at 608.50 and analysts are setting price targets of 650, 675, 690.  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 to compete.  Either way, BIDU has a great future.

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