Sunday, May 30, 2010

Google: The Death Cross Arrives

GOOG


Overview
Google is up +2.88% for the week, down -7.62% for the month, down -21.67% for the year, and up +66.95% since the March 9, 2009 market bottom. This equates to +$13.58 for the week, -$40.07 for the month, a whopping -$134.35 for the year, and +$194.74 since the March 9, 2009 market bottom.  GOOG is down -22.52% or -$141.12 from the 2010 YTD high, of 626.75 on January 4.  By comparison, the overall market, the S&P 500, is down  -8.20% for the month, down -2.30% for the year, up +61.03% since the March 9, 2009 market bottom, and down -10.50% from the 2010 YTD high on April 23.  GOOG has not underperformed a dismal market, including the 50 day simple moving average crossing below the 200 day simple moving  average - the Death Cross or Black Cross.  GOOG YTD closing low was on Friday, May 21 at 472.05.  Google's short-term operating performance has been very good. Of course, it's the long-term outlook, with investors concerned about the possible (probable?) loss of the Chinese market and what will be the second significant revenue stream for Google, that is of concern.

Google Daily Chart
Below is the GOOG daily chart for 2010.

Noteworthy Closing Prices on Daily Chart below:
Current 485.63 (Lower yellow horizontal line)
2010 YTD 1-4-10 High 626.75
YE 12-31-09 619.98
10 Month EMA 514.59 (Higher yellow horizontal line)


GOOG: The Death Cross Arrives




Intermediate-Term Trend
The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, flipped to an intermediate-term bear market on Tuesday, May 4. That is, the 25d sma is now less than the 50d sma. The market pullback, Flash Crash, and general malaise of GOOG stock pulled the sma's down.

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. The May 7 trough of 493.14 continues as the next key current resistance.  The May 10 peak of 521.65 is the another key upward benchmark.  Important resistance above that is the trading range of late January through early March.

Support, GOOG needs Support!
Solid support has been critical for GOOG during the China, Apple iAd, Q1 Earnings, & Eric Schmidt Beat Downs plus the general market pullback as a result of the EU and Euro Crisis and the Flash Crash.  However, the support, and bar, for GOOG has been lower and lower.  The YTD closing lows continue. GOOG has pulled back to September and October 2009 prices.  GOOG is also way back to the July and August 2008 trading range.

Moving Averages
GOOG has broken down through, and remains below, the 25d, 50d, 100d, and 200d simple moving averages.  The 25d sma has broken down through 50d, 100d, and 200d sma's.  The 50d is below the 100d and has now cross below the 200d - the Death Cross or Black Cross.  The 100d is descending towards the 200d.  The 25d, 50d, and 100d sma's are descending and the 200d sma is leveling off.

Uptrend Line
The uptrend line, a rate of price ascent, is from the November 24, 2008 closing low of 257.44 up through the May 21, 2010 closing low of 472.05, the latest 2010 YTD closing low.  GOOG had broken down through a previous uptrend lines, so this is a new, redrawn uptrend line.  GOOG managed to stay above the entire week of May 24.

Downtrend Line
The downtrend line, a rate of price descent, is from approximately 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 = 29.55 is oversold and descending, but is above the amazing low of 13.72 on May 5
RSI 28 day = 32.73 is oversold and descending, but is above the February 10 low of 25.23
The RSIs have plunged on the GOOG sell off and indicate continuing oversold conditions.

MACD (12,26,9)
The MACD flipped to bullish on Friday, May 28, after being bearish since Friday, April 16 with a sell off.

Long-Term Trend
The 10 month exponential moving average, the higher yellow line, is the line in the sand, so to speak, for the long term signal of a bull or bear market. GOOG continues below this indicator.  GOOG is struggling with the long term bear signal.

Conclusion
GOOG is in an intermediate term bear market and a long term bear market.  GOOG has plunged below $500 into the Bear Abyss.  Are the Beat Downs over for GOOGGOOG stock is surviving, but barely.  The RSI 14 day and 28 day are signalling oversold conditions. The MACD signal has switched to bullish.  The moving averages are bearish, including the very bearish Death Cross.  At this point, I think all that can be hoped for is GOOG finally becomes cheap enough the buyers step in - that will be the ultimate support for GOOG, the equilibrium.  Google is venturing into so many areas, yet significant revenue streams have not been developed from these efforts.  Until Google proves viable in an area other than online advertising, the stock may stay in limbo.  Overall, concerns about GOOG are 1) market share has flat-lined, 2) regulatory scrutiny has increased, 3) operating margins have peaked, 4) new revenue initiatives will be immaterial.


Google News & Fundamentals


AdMob Acquisition Is Complete
Now Google has a mobile advertising platform to go squarely against Apple iAd.  Smartphones are the future and now Google finally gets a break in 2010.  Whether this development will boost the GOOG stock price remains to be seen, but it is seen as an "unexpected positive".

Developers I/O Conference
This conference was the week of May 17 and Google had plenty of announcements! Some of the highlights were 1) activating 100,000 Android devices per day, 2) unveiled the Android 2.2 Froyo OS for smartphones, 3) Froyo will support Adobe Flash, 4) will purchase Simplify Media, 5) through Simplify Media will launch streaming music service, 6) will start selling music through Android Market, 7) announced collaboration with Sony, Intel, and Logitech to start "Google TV", 8) YouTube will have a channel on Google TV.  Google is busy!  In addition, there was a tremendous amount of Apple Bashing at the conference.  It is now crystal clear it is Google versus Apple in more and more markets.  The Big Question is, how will all this be monetized and when will significant revenue streams come online and hit the GOOG bottom line?

Google Cloud
Google has completed the application process to go into the "Government Cloud" market.  This could be a potential significant source of revenue in the future.  Now that Microsoft Office 2010 has been launched in May, 2010 and is also available online in the cloud, Google is attempting to compete directly with Google Docs.  This cloud competition should be interesting, but Microsoft has a huge lead.  Google also announced collaboration with VMware to develop and deploy business enterprise apps in the cloud via Google App Engine, a platform for building and hosting web applications in the cloud.

Annual Shareholders Meeting
The Google Inc. stockholders meeting was Thursday, May 13.  CEO Eric Schmidt spoke and the gist of his message was: "All is well after a year of great tumult".  CEO Schmidt also commented on the China Censorship issue: the situation "seems to be stable", with Google redirecting search requests from mainland China through Hong Kong.  He mostly talked up the Google Android smartphone OS, currently at 28% of USA consumer sales (compared to Apple 21%).  65,000 Android OS phones are being shipped every day worldwide on 34 devices in 49 countries.

China
Google's internet license in China expired March 31 and Google has not attempted to renew it.  Google's  search is apparently working in mainland China, from Hong Kong.  However, Google is now at a competitive disadvantage in China to Baidu, the search engine market leader.

Long Term Outlook
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. Google's PE TTM is now down to 21.98.  In comparison Baidu's TTM PE has reached an astronomical 97.65.  It's all about expectations and the market has reduced its expectations of GOOG and increased those of BIDU.  Again, the Big Question is, how will all this be monetized and when will significant revenue streams come online and hit the GOOG bottom line?

CNBC: American Titans
CNBC has done a feature on Google Inc., "Searching for More", the week of May 10 in their American Titans series.  Click here for the commentary and analysis in this feature.

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. 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 Search Engine
The latest market share report showed GOOG has 64.4% of USA search engine market share in April, a decline from 65.1% in March.  Yahoo had 17.1% and Microsoft Bing 11.8%.

Products
There's Android smartphones, Android smartphone OS, Google Apps Marketplace, Chrome browser, Chrome OS, Google Apps cloud computing, Google Docs to compete with Microsoft Office 2010 online, etal.  What is making a net profit besides the online ad revenues???  The core business, online advertising, still accounts for 96% of GOOG business.  I think this question is weighing on GOOG stock and investor confidence and expectations. Google's President of Global Sales Operations Nikesh Arora said in May, 2010: "If we are a one trick pony, we have a pretty good trick".  So far this trick has worked unimaginably well, but for how long?

Quarterly Earnings & Analysts' Estimates
Google beat Q1 estimates but not expectations, but that's not all - CEO Eric Schmidt was not on the Q1 conference call for first time and without pre-announcement.  Citigroup gave a buy rating to GOOG the week of May 24 with a $640 price target, stating all the concerns about Google are "overblown".

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's, analysts', and investors' scrutiny of Google, this was a PR disaster. 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 media, investors and analysts.


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