Sunday, June 13, 2010

Google: Is the Bottom In?


The GooglePlex at Mountain View, California

Google pulled back and has stayed below $500 this week. Google is down -2.05% for the week, up +0.59% for the month, down a dismal -21.21% for the year, and up +67.93% since the March 9, 2009 market bottom. This equates to -$10.22 for the week, +$2.87 for the month, a painful -$131.48 for the year, and +$197.61 since the March 9, 2009 market bottom.  GOOG is down -22.06% or -$138.25 from the 2010 YTD high, of 626.75 on January 4.  By comparison, the overall market, the S&P 500, is up +2.51% for the week, up +0.20% for the month, down -2.11% for the year, up +61.35% since the March 9, 2009 market bottom, and down -10.32% from the 2010 YTD high on April 23.  So, GOOG has been underperforming the market this year.

A second Death Cross occurred last week on June 4, the 100 day simple moving average crossed below the 200 day simple moving average.  Previously, the 50 day simple moving average crossed below the 200 day simple moving average - the Death Cross or Black Cross, on May 25.  GOOG YTD closing low was on Friday, May 21 at 472.05, although this low was tested on June 9 with a 474.02 close.  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.

Google News and Fundamentals
A review and update of Google news and fundamental analysis is in the previous post. A review and weekly update of USA and World market and economic news and fundamental analysis is hereOverall, the USA and global economic data remains cautiously optimistic.

Google Daily Chart
Below is the GOOG daily chart for 2010.  A monthly chart is included at the bottom of this page for a broader perspective.

Noteworthy Closing Prices on Daily Chart below:
Current 488.50 (Yellow horizontal line)
2010 YTD 1-4-10 High 626.75
YE 12-31-09 619.98
10 Month EMA 509.85

GOOG: Is the Bottom in at $472.05?

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.

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. GOOG is just below the May 27 peak of 490.46 and is resistance.  The May 7 trough of 493.14 continues as the next key resistance. The June 3 peak of 505.60 and the May 10 peak of 521.65 are additional, and higher, key upward benchmarks.  Important resistance above that is the trading range of late January through early March.

Support, Has GOOG Found Support?
GOOG is below the September 22, 28, and 29, 2009 closing highs and peaks of 499.06, 498.53, and 498.53, respectively.  Google has not been able to regain and hold $500. Solid support has been critical for GOOG during all the Beat Downs: China, Apple iAd, Q1 Earnings, Eric Schmidt, plus the general market pullback. However, the support, and bar, for GOOG has been lower and lower.  It has been encouraging that GOOG has been able to remain above the May 21 2010 YTD trough, closing low of 472.05.  GOOG is also back the higher end of the July and August 2008 consolidation trading range.

Moving Averages
GOOG 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 crossed below the 200d - the Death Cross or Black Cross on May 25.  The 100d crossed below the 200d, yet another, and longer term, Death Cross, on June 4.  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 has managed to stay above the entire weeks of May 24 and 31, broke below the week of June 7 but has since regained the trendline.

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 = 58.29 is reasonable and is well above the amazing low of 13.72 on May 5
RSI 28 day = 40.98 is marginally oversold and is above the February 10 low of 25.23 and May 25 low of 25.26
The RSIs have plunged on the GOOG sell off and indicate continuing, but less strong, oversold conditions.

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

Long-Term Trend
The 10 month exponential moving average of 509.85 is a long-term indicator.  That 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.

GOOG continues in an intermediate term bear market and a long term bear market.  GOOG has struggled below $500, the Bear Abyss.  GOOG did close above 500.00, at 505.60, on Thursday, June 3, for the first time since May 17.  However, GOOG is now yet again below 500.00.  Are the Beat Downs over for GOOGGOOG stock is surviving, but barely, although the last 3 weeks have been encouraging and hopefully suggest the bottom is in for GOOG..  The RSI 14 day is reasonable and the RSI 28 day are marginally oversold.  The MACD signal has switched to bullish and is uptrending.  The moving averages are bearish, including two very bearish Death Crosses.

I hope at this point buyers are continuing to step in and GOOG has found the bottom and ultimate support, 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.

GOOG Monthly Chart

Below is the monthly GOOG chart since January 2005 for a long-term perspective.  The overall analysis and commentary are the same as for the daily chart above.  The yellow horizontal line, the current price, plus the yellow downtrend and uptrend lines are the same, and as described, on the daily chart above. The white moving average line is the 10 month exponential moving average, which is the long-term bull or bear market signal, as discussed above with the daily chart.


Seeking Alpha