Sunday, January 30, 2011

Google Tests $600 (Charts) *50 day average $599.82* GOOG


Google reported Q4 2010 financial results on Thursday, January 20, 2011
Earnings per Share were $7.81, Operating Cash Flow per Share was $10.83

Google Overview

GOOG Google struggled again this past week to close at $600.99 on Friday, January 28, 2011, which is now the 2010 YTD closing low. However, even though Google was down -1.77% for the week, GOOG is still up +1.18% for the month and year. GOOG is up a market-beating +107% since the March 9, 2009 market cyclical low. This equates to -$10.84 for the week, +$7.02 for the month and year, and up an incredible +$310.10 since the March 9, 2009 market bottom. GOOG is down -6.04% and -$38.64 from the 2011 and multi year closing high of $639.63 on January 18. This was the highest close since $653.82 on January 14, 2008. After struggling in the Bear Abyss below $500 earlier in 2010, GOOG has been above $500 since September 20, 2010 and above $600 since January 3, 2011.

S&P 500 By comparison, the overall market, the S&P 500, at 1276.34, was down -0.55% for the week and is up +1.49% for the month and year. SPX is up +89% since the March 9, 2009 market cyclical low. SPX closed at a multi-year closing high of 1299.54 on Thursday, January 27, 2011, the highest close since the August 28, 2008 close of 1300.68. GOOG has been outperforming the market since the March 9, 2009 market bottom, underperformed for 2010, and is slightly underperforming in 2011. A review of the S&P 500 is here [S&P 500 Drops on Egyptian Uprising (Charts) *Economic news, corporate earnings pushed aside*].

Management Restructure Google announced on Thursday, January 20, 2011 a restructure of management "to streamline decision making and create clearer lines of responsibility and accountability at the top of the company".
* Larry Page, Google Co-Founder, will take charge of Google's day-to-day operations as Chief Executive Officer.
* Sergey Brin, Google Co-Founder, will devote his energy to strategic projects, in particular working on new products.
* Eric Schmidt will assume the role of Executive Chairman, focusing externally on deals, partnerships, customers and broader business relationships, government outreach and technology thought leadership--all of which are increasingly important given Google's global reach. Internally, he will continue to act as an advisor to Larry and Sergey.
We could find nothing negative about this management restructure and consider this a positive development. This appears to be the synchronizing of the informal organization chart to the formal organization chart. That is, these were the roles and tasks somewhat being performed by Page, Brin, and Schmidt already. These were the roles and tasks they each wanted to perform and believed were the strengths of each. A review of the management restructure has been posted here [Google Restructures Management (Video, Review) *Co-Founder Larry Page will be CEO again*]

Google Fundamentals Google reported excellent calendar Q4 2010 financial results on Thursday, January 20, 2011. Google financial data, charts, and review is at the Google Financial Performance page, updated for the latest calendar Q4 2010 financial results. A review and analysis of the Q3 2010 earnings call is at the Google Earnings Conference Call page and will be updated soon for the Q4 2010 earnings call. Our updated valuation and target price for GOOG stock is posted at the Google Stock Valuation page.

Google Product News Google was in the news in December as a result of the Google Chrome Event on December 7. In addition, Google announced the launch of the Samsung Nexus S Android (Gingerbread OS) smartphone and the opening of the eBooks Store. At the Google Chrome Event, the Chrome Web Store was launched, the Chrome Notebook was unveiled, which is planned to be consumer-ready by mid-2011 with Acer and Samsung as the first manufacturers, and Google announced the Chrome browser user base had increased +300% in 2010 with a conservative count of 120+ million active users. More innovation is coming for the Chrome browser, based on speed via Chrome Instant. Finally, Andrew Rubin tweeted on December 9 that 300,000 Android phones are being activated daily, which is a blowout number. This was after the negative news that the EU had launched an anti-trust investigation. Revenues from outside of the United States were 52% of total revenues in the fourth quarter of 2010.

Economic and Market News Information about the USA and world economies is posted at Boom Doom EconomyFinancial Controls, and Baidu Planet. Additional current commentary on both the overall stock market and economy is posted at Matrix Markets.

Google Tests $600

Google Daily Chart Below is the GOOG daily chart since October 15, they day after Google reported calendar Q3 2010 earnings after market close and gapped up. This is to illustrate the recent applicable price interactions with the current close, resistance, and support. A monthly chart is included lower on this page for a longer-term perspective.

Noteworthy Closing Prices
Current Close: $600.99
2011 and Multi-Year High: January 18 $639.63
2011 Low: January 28 $600.99
2010 High: November 8 $626.77
2010 Low: July 6 $436.07
YE December 31, 2010: $593.97
YE December 31, 2009: $619.98
Cyclical Low November 24, 2008: $257.44

* The 200 day simple moving average and the uptrend line are not shown on the daily chart. *

Intermediate-Term Trend The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, generated a buy signal on Tuesday, January 11, after being in sell mode since December 14. Therefore, GOOG is now in an intermediate-term bull market. That is, the 25d sma is now greater than the 50d sma. However, the relationship between these two moving averages is a lagging indicator. Both the 25d sma (not shown on the daily chart above) and the 50d sma have leveled off. GOOG is below the 25d sma and above the 50d sma.

Resistance The first key resistance is both the 20 day simple moving average of 615.13 and the 616-617 area just above, from which GOOG fell on January 28. Higher resistance is the 2010 closing high of 626.77 on November 8 and also the 626.75 close on January 4, 2010. Higher  yet resistance is the recent multi-year and 2011 closing high of 639.63 on January 18. Next higher is the intraday high of 642.96 on January 19. Above that are the technical resistance areas as a result of the ascent to and descent from the all-time closing high of 741.79 on November 6, 2007. Additional resistance possibly could be the 618.00 area, which GOOG has had previous interactions with as far back as late 2007.

Support GOOG basically held and closed at both the 600 benchmark price and the 50 day simple moving average (599.82) on Friday, January 28. Next support is in the 594-595 area and then the 590 area.

Moving Averages GOOG has dropped below both the 20 (615.13) and 25 (612.50) day simple moving averages. GOOG is now just above the 50d sma (599.82). Further below is the 100d sma (579.87) and the 200d sma (534.38). The 20d, 25d, and 50d sma's have basically leveled off. The 100d is ascending strongly and the 200d is ascending.

Uptrend Line (Not shown on the daily chart) The yellow uptrend line, a rate of price ascent, is from the November 24, 2008 cyclical closing low of 257.44 up through the July 6, 2010 YTD closing low of 436.07. GOOG broke down through this trendline on August 30 and 31, but bounced above on September 1 and has remained well above since.

Downtrend Line The yellow 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 18, multi year and 2011 closing high of 639.63. GOOG had 2 failed attempts on January 19 and 21 to break through upside and has remained below since.

Relative Strength Index (RSI) The RSI 14 day = 40.90 is leaning oversold, plunging, and well below the recent peaks of 89.05 on December 20 and 81.78 on January 18. The recent low was 17.01 on August 24, 2010 and the unbelievable low of 4.79 on July 6, 2010. A multi-year high, of 94.12 was reached on September 27, 2010. The RSI 28 day = 53.58 is reasonable and descending. The 2010 and multi-year high was 87.87 on October 18. The 2010 lows have been in the mid-20s. Both RSIs are reasonable, but have decreased yet again this past week.

MACD (12,26,9) The MACD = -2.39 has descended for 8 consecutive trading days and been negative for 5 consecutive trading days. The 2010 and multi-year high was +7.27 on October 19. The 2010 and multi-year low was -8.30 on November 17.

Volume Volume was a high 4.2M on Friday, January 28m 2011. The multi-year high has been an incredible 14.8M shares on October 15, 2010 (the day after Q3 earnings release). The 20 day simple moving average of approximately 2.9M is ascending. By comparison, the 50 day sma is approximately 2.5M and has leveled off.

Long-Term Trend The 10 month exponential moving average of 548.86 is a long-term indicator and shown on the monthly chart below. That is the line in the sand, so to speak, for the long-term signal of a bull or bear market. GOOG rallied above this indicator in September and has stayed above since. GOOG had been mostly below from April to August in 2010.

Conclusion Bullish sentiment has been weak for Google recently and the overall market downdraft on January 28 pulled GOOG down to $600. Google reported excellent Q4 2010 financial results, record-setting, on Thursday, January 20 which are reviewed on the Google Financial Performance page  The announcement of a management restructure is reviewed earlier in this post and also here. We do not believe this is ultimately negative news. A review and analysis of the most recent Q3 2010 earnings call is at the Google Earnings Conference Call page which will be updated soon for the Q4 2010 earnings call. The Great Google continues as an extraordinary cash flow machine! Google has set the bar high for the future and EPS growth. The intermediate-term trend turned bullish on January 11 and the long-term trend continues bullish. The line in the sand continues to be $600, which GOOG has managed to stay above for all of 2011. Will buyer confidence maintain GOOG above $600? We think so. More about Google the value of GOOG stock on the Google Stock Valuation page.

Google Monthly Chart

Below is the monthly GOOG chart from the November 24, 2008 cyclical closing low of 257.44 . The overall analysis and commentary is the same as for the daily chart above. The yellow uptrend and downtrend lines are the same, and as described, on the daily chart discussion above. The white moving average line is the 10 month exponential moving average, which is the long-term bull or bear market signal. GOOG rallied above 10m ema in September 2010 and the current close continues above, indicating a long term bull market.

Disclosure We are long GOOG.

About Google

Google's market capitalization slipped to 7th largest in the USA this past week, from 6th, at $192.18B. This is behind #1 Exxon $398.31B, #2 Apple $309.64B, #3 Microsoft $233.17B, #4 General Electric $215.23B, #5 Wal-Mart $201.97B, and #6 International Business Machines $197.80B. Google is the 4th largest technology company in the USA by market capitalization behind Apple, Microsoft, and IBM. Current Google financial data is at the Google Financial Performance page. A review and analysis of the most recent Q3 2010 earnings call is at the Google Earnings Conference Call page which will be updated soon for the Q4 2010 earnings call. More about the value of GOOG stock on the Google Stock Valuation page. Headcount: On a worldwide basis, Google employed 24,400 full-time employees as of December 31, 2010, up from 23,331 full-time employees as of September 30, 2010.

Google describes itself in press releases as, "Google's innovative search technologies connect millions of people around the world with information every day. Founded in 1998 by Stanford Ph.D. students Larry Page and Sergey Brin, Google today is a top web property in all major global markets. Google's targeted advertising program provides businesses of all sizes with measurable results, while enhancing the overall web experience for users. Google is headquartered in Silicon Valley with offices throughout the Americas, Europe and Asia."

Google's Mission Statement: "Google's mission is to organize the world's information and make it universally accessible and useful. The first step toward fulfilling that mission came when our founders, Larry Page and Sergey Brin, working out of a Stanford University dorm room, developed a new approach to online search that quickly spread to information seekers around the globe. Google is now widely recognized as the world's largest search engine -- a free service whose utility and ease of use have made it one of the world's best-known brands almost entirely through word of mouth from satisfied users."

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