Friday, April 2, 2010

Google & Baidu: A Tale of Two Tech Stocks (4-1-10 Close)

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Google & Baidu


Overview
Google's censorship conflict with China has beat down the Google stock price, but this has benefited Baidu tremendously. Baidu has the largest search engine market share in China (65%) 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.  Latest development is Google's internet license in China expired March 31 and Google has not attempted to renew it.

Price Earnings Ratio
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 and the world's largest internet market. 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: So Far, The Bottom Is In


Overview
GOOG is up +0.30% for the week, up +0.30% for the month, down -8.26% for the year, and up +95.54% since the March 9, 2009 market bottom. Googzilla has rallied from the China Beat Down after bottoming with a March 23 closing low of 549.00.  The censorship conflict with China, and high probability of leaving the huge Chinese market, had 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 November 2009 through the current close.

Noteworthy Closing Prices on daily chart below:
Current 568.80 (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 528.86 (Lowest yellow horizontal line)


GOOG: Support Still Holding




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 critical for GOOG during the China Beat Down - and support has held. GOOG has now risen above October 2009 trading range, which was recent support that held.  The current price is now in the stair stepping trading of November 2009 plus long-term support that held from back in May and June 2008. GOOG is now just above the consolidation trading of early and mid March. GOOG is also above the long-term support trading range of April through July 2008 that held in the downturn.

Resistance
The current price is well below the January 4, 2010 YTD closing high and the 12-31-09 YE close, both now important recent resistance and benchmark prices. Important recent resistance just above is the March 11 peak of 581.14.  This close was the peak before the China Beat Down.  Longer term resistance is the May 5, 2008 peak of 594.90, along with other associated peaks during May and June 2008.  GOOG is now above the March 5-19 trading range.

Moving Averages
The 25d sma bottomed on March 1 and is ascending. The 50d, continues descending. The 100d sma has leveled off and began to slightly ascend. 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, but not the 100d sma.  GOOG has regained both the 25d and 50d sma's, but is still just below the 100d sma.

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. 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 through this uptrend line on Wednesday, March 24, before rallying once again.  GOOG is managing to stay above the uptrend line.

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 = 40.68 is bordering on oversold; bounced up from a bottom of 37.82 on March 31
RSI 28 day = 59.40 is reasonable, neutral; has basically leveled off this past week
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 bullish on Wednesay, March 31. The MACD had been bearish since March 23.

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! Both recent and long-term support has held and an upward bounce ensued off the closing low of March 23 at 549.00, with good volume. The RSI 14 day and 28 day are lowing, towards the oversold side.  The MACD signal flipped to bullish on March 31.  At this point, it appears GOOG is out of China and it's a waiting game to see what the Chineses government does.  The 2010 YTD lows in the 530 or lower area could possibly be tested again. However, as I noted in previous posts, 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 due to the China censorship conflict, BIDU skyrocketed. BIDU is up +0.50% for the week, up +0.50% for the month, up +45.90% for the year, and up +286.90% since the March 9, 2009 market bottom. BIDU is now consolidating in the 600 area, presumably before going higher in 2010.

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

Noteworthy Closing Prices on daily chart below:
Current 600.00 (Second highest yellow horizontal line)
All-Time High 3-24-10 608.50 (Highest yellow horizontal line)
YE 12-31-09 411.23 (Lowest yellow horizontal line)
10 Month EMA 455.89 (Third highest yellow horizontal line)


BIDU: Holding $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.

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 is 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 just below the all-time high for just six days.

Relative Strength Index (RSI)
RSI 14 day = 70.71 is overbought, has pulled back due to recent consolidation trading
RSI 28 day = 73.25 is overbought, has pulled back due to recent consolidation trading
The RSIs are being reduced, and more reasonable, due to last 6 days of consolidation

MACD (12,26,9)
The MACD is bearish and has been since March 31.  BIDU had been bullish 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 second highest yellow horizontal line.

Conclusion
BIDU peaked at the all-time high of 608.50 on Wednesday, March 24 and has pulled back to the 600 area in consolidation trading. Analysts setting price targets of 650, 675, 690 due to Google's exit from the Chiina internet market 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 and the stock should continue upwards in 2010.


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Seeking Alpha