Tuesday, January 24, 2006

Is Google Going Soft?

I have something amazing to show you.

Google's lowest price ever was on the day of its IPO. Its highest price ever was recently, on January 11th.

I drew a Fibonacci retracement from the lowest low to the highest high. The first retracement level indicated a price of $394.74.

During last week's fall, Google got hit hard. How hard did it fall? What's the lowest price that it reached? The answer: $393.97. Do you know how close that is to the predicted retracement? One TENTH of one percent! Incredible!

Taking this a step further, this morning I saw Google was strong. It bounced up quite a bit yesterday, and it was headed north again today. I was interested in going short this stock (buying puts, actually). I wanted to get in at a good price. So I drew another retracement on a much shorter time horizon, as shown below. As you can see, the price got right up to the retracement level and then softened up.

Now, there's no guarantee of course that the price will plummet. But at least I have a nice clean stop-loss point (the same retracement level).

Although I'm a strict technician, I will say one thing about Google....they seem to be slipping. Don't get me wrong; I think the company is amazing. They're obviously one of the greatest business successes in human history, and their search page is my home page. Google Maps can't be touched. Almost everything they've done is the best in its class.

But their most recent offers.....and I'm thinking of their video search and their blog search.....leave a lot to be desired, in my opinion. I was kind of flabbergasted that Google would have put these things out there. I'm not alone in that. I've heard a lot of disappointment about their video offering.

This has nothing to do with technical analysis. But I'm just wondering if a company with this much of a Midas touch might already be past its prime. Food for thought.


Anonymous said...

I went long GOOG at the end of the day on Friday around 400 and added to my position yesterday. My trailing sell stop is drawn as a uptrending support line drawn under the lows, starting from Monday. I'm indifferent about any stock, just as long as I make money. My rough forecast is 525 (.618 * (475-394)+475).

I think GOOG will sell off...eventually to 300 or so but it'd be easier to short it AFTER it breaks major support and then rallies up to resistence.

Everyone has a different approach but trying to short GOOG without a reversal is like bagging an elephant. You get him, it's a hecka trophy. You miss, he gets you. JMHO.

Re: rally, I think we see some retracement in oil prices and that sets off a minirally (3-5%) in late Jan/early Feb and THEN we'll see the sell off. Gotta kill a few more bears and suck in some new bulls. vbg.

I enjoy your posts. Thanks!

Anonymous said...

Out at 438. LOL. Looks like GOOG bounces around now prior to ER.

Anonymous said...

I don't understand how this could be a bear market when the Russell 2000 is making daily new high. Please explain.

Tim Knight said...

To respond to the three anomymous posts.....

+ I'd be surprised if GOOG pushed to a new lifetime high (e.g. $525), but I could certainly be wrong! Its drop of 10 points today is encouraging, particularly considering the bearish engulfing pattern.

+ I'm not saying this is a bear market. Not at all. It MAY be the beginning of a bear market, but it's going to take months before we could actually look back and say that. What I am saying, however, is that stocks are certainly weakening. The Russell 2000 is a bit of a freak by making new highs. Look at the other indexes - S&P 100, 500, NASDAQ Composite, 100, Mid Cap 400 - and you're not going to see anything close to a new high.

Anonymous said...

Yep, I'm the one trading GOOG. Glad I got out at 438 although I shoulda sold the open at 450. Too many trapped bulls wanting to get out. I don't think Friday's low will hold re GOOG but I'm looking at support around the 200 DEMA which is 375 at time of this post. I think that'll happen after GOOG releases earnings. It'll be a nice ST trade.

For the poster on the Russell 2000, the LT moving averages are still in uptrends. Haven't even had the 50 crossed beneath the 200 day so one should trade from the long side,i.e. sell resistance, buy support, and practice good money management (correct position size, entry/exit points, etc).

Guys like Tim can short the rallies but for most, it's a tough job.


Anonymous said...

Tim What about earnings on Tuesday,any thoughts? They are very careful about guidence now since the last time they said something wrong last summer.
the charts look right for a big move if the earnings are off the wall.