Sunday, April 18, 2010

Google & Baidu: A Tale of Two Tech Stocks (4-16-10 Close)

GOOG & BIDU


Google and Baidu (and then, Apple)


Overview
What a difference a week, actually a day, makes!  Sheesh!  Google Beat Downs continue...  Google's censorship conflict with China had 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 developments are (1) Google beat Q1 estimates but not expectations, (2) CEO Eric Schmidt was not on the Q1 conference call, (3) Google's internet license in China expired March 31 and Google has not attempted to renew it, (4) Google's mobile search is apparently working in China, from Hong Kong, and (5) Apple has announced the iAd, a mobile advertising platform to be in direct competition with Google.

The Curious Case of Google CEO Eric Schmidt
Schmidt was not on the Q1 Earnings conference call on Thursday, April 15.  It was announced he would not be henceforth, period.  With the recent accusations of Google being hacked from China, the China censorship issue, Apple CEO Steve Jobs introducing the direct competition of the iAd, and therefore the intense media, analysts', and investors' scrutiny of Google, this was a PR disaster at a minimum.  At most, and worst, this is indicative of a problem between CEO Eric Schmidt and Google.  Regardless, this absence of Schmidt spooked the market at a critical time when Schmidt should have been speaking to investors and analysts.

Price Earnings Ratio
Google beat Q1 estimates, but not analyst and investor expectations.  Of course, it's the long-term outlook that is dampened by the Chinese issue and the world's largest internet market plus the Apple iAd. The question is how much investors will discount Google's PE.  I still think the GOOG bottom is in, we'll find out this week. Google's PE TTM continues at about 26.85, while Baidu's TTM PE has reached 101.22, from the mid 90s.

Apple iAd
First China, then Apple takes a shot at Google. Steve Jobs and Apple announced April 8 a new mobile advertising platform along with the iPhone OS 4. The last few weeks have belonged to Apple, lol. Obviously, the iAd platform is a direct threat to Google's advertising revenues, since Apple has made it clear it is going in the mobile advertising business. First GOOG has a China Beat Down, then an Apple Beat Down.  AAPL stock is reviewed by Apple Digest here.


Google: China, then Apple iAd, then Q1 Performance, then CEO Eric Schmidt, and the Bottom Is Still Not In?


Overview
GOOG is down -2.84% for the week, down -2.99% for the month, down -11.26% for the year, and up +89.12% since the March 9, 2009 market bottom. Googzilla rallied from the China Beat Down after bottoming with a March 23 closing low of 549.00. Then GOOG crashed on Friday, April 16, giving up the recent gains.  The censorship conflict with China, and high probability of leaving the huge Chinese market, had already damaged the stock price. Actually, GOOG's short-term operating performance was very good.  Of course, it's the long-term outlook, with the seeming loss of the Chinese market, that is of concern. Now, having found support from the China Beat Down, GOOG must reckon with the Apple iAd, not meeting Q1 expectations, and what's going on with CEO Eric Schmidt...

Google Daily Chart
Below is the GOOG daily chart from November 2009 through the current close.

Noteworthy Closing Prices on Daily Chart below:
Current 550.14 (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 525.47 (Lowest yellow horizontal line)


GOOG: Is The Bottom In? Again?




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 previously 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 somewhat reasonable price - all things considered.

Support, Support, Support: GOOG needs Support!
Solid support has been critical for GOOG during the China, Apple iAd, Q1 Earnings, & Eric Schmidt Beat Downs - and support has held amazingly well, imo. GOOG has pulled back to the October 16-30, 2009 trading range, which has been recent support that presumably held on Friday, April 16. Critical recent support is the March 23 bottom close of 549.00, the bottom of the China Beat Down.  GOOG almost pinned this bottom on Friday, April 16 with a 549.63 intraday low print.  The current price is now in a price interaction area also, long-term support, from back in April through July 2008.

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, and far away, resistance and benchmark prices. Important recent resistance above is the March 11 peak of 581.14, April 5 peak of 571.01, and April 15 peak of 595.30.

Moving Averages
The 25d sma bottomed on March 1 and ascended, until Friday, April 16 when the gapping, big red candle pulled it down.  This also caused the 50d sma to level off, from previous ascent.  The 100d sma has leveled off.  The 200d sma continues ascending. Most bothersome has been the 25d & 50d sma's not regaining the 100d sma.  GOOG has now broken down through the 25d, 50d, and 100d sma's.

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 broke down through this trendline on Friday, April 16, after being above this uptrend line since February 26.  The trendline has also been tested, almost pinned, 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 and this uptrend line are a mess, lol.

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 = 43.45 is low; approaching oversold conditions
RSI 28 day = 46.40 is low; approaching oversold conditions
The RSIs have plunged on the recent selloff and are approaching oversold signals.

MACD (12,26,9)
The MACD flipped to bearish on Friday, April 16 with the selloff.  The MACD has been hovering around the 0.00 line and +-1.00 for 16 of 19 trading days now. The signal is more neutral than anything else.

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
Google sold off Big Time on Friday, April 16: down -$45.16 and -7.59%!  The gapping, big red candle on the chart sums it up, lol.  Are the Beat Downs over for GOOG?  GOOG is surviving, sort of! The closing low of March 23 at 549.00 is now the recent critical support to watch this coming week.  If that support fails, then February 25 closing low of 526.43 is the next line in the sand.  The RSI 14 day and 28 day have plunged towards oversold conditions.  The MACD signal is basically neutral. At this point, it appears GOOG is out of China and it's a waiting game to see what the Chineses government does. The new immediate uncertainty is CEO Eric Schmidt and his absence from teh Q1 earnings conference call - bad judgement at a minimum and portending even worse possibly.  The 2010 YTD lows in the 530 or lower area could possibly be tested again. The future impact of Apple iAd is unknown, but does appear as a threat to Google. That is, the potential loss of the Chinese market is mostly priced in but not necessarily the Apple iAd impact.. If China does throw Google out, yet another dip is possible and then the bottom would be in. The intermediate-term trend is bullish. The long-term trend remains bullish. The China, Apple iAd, and CEO Eric Schmidt stories continue...


Baidu: $632 & Counting!


Overview
As GOOG pulled back due to the China censorship conflict, BIDU skyrocketed. BIDU is up +1.10% for the week, up +5.92% for the month, up +53.78% for the year, and up +307.77% since the March 9, 2009 market bottom. BIDU consolidated in the 600 area and now has gone higher. Baidu reports earnings on Tuesday, April 27, estimates are $11.03 per share on $1.2B revenues.

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

Noteworthy Closing Prices on Daily Chart below:
Current Close 632.37 (Highest yellow horizontal line)
All-Time High 4-15-10 648.96
YE 12-31-09 411.23 (Lowest yellow horizontal line)
10 Month EMA 461.77 (Middle yellow horizontal line)


BIDU: Up +308% from the March 9, 2009 Market Bottom!




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 all-time closing high of the previous day, Thursday, April 15. That is the only resistance and there is no long-term resistance. There is much significant support below, especially in the 600 area consolidation trading.

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 significant downtrend line, a rate of price descent, because BIDU is just below the all time high of Thursday, the previous day close..

Relative Strength Index (RSI)
RSI 14 day = 71.05 is marginally overbought, but reasonable
RSI 28 day = 73.05 is slightly overbought, but reasonable
The RSIs are actually quite reasonable considering the big BIDU run up.  The consolidation trading from March 23 through April 5 has kept the RSIs down plus the current gradual rise in price.

MACD (12,26,9)
The MACD flipped to bearish with the pullback on Friday, April 16.  The gradual rise, and pullbacks, in BIDU is rendering the MACD ineffective.

Long-Term Trend
The middle 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 has peaked yet again at an all-time high on Thursday, April 15, after consolidation trading in the 600 area. Analysts setting price targets of 650, 675, 690 due to Google's presumed exit from the Chiina internet market created a bull frenzy that has cooled off. 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 both intermediate and long term, unless somehow Google stays in China and can compete effectively. Short term, BIDU is nearing the analysts price targets, and price ascent is slowing and gradual. Regardless, BIDU has a great future and the stock should continue upwards in 2010.


GOOG & BIDU

Seeking Alpha