In nearly every seminar as I travel the globe, I am constantly asked "Where's Google going?" Honestly, if I really knew the answer to that question, I would mortgage the house, sell the kids, and put everything down on Google... but that’s not the case, so what I will attempt to do in this brief article is summarize the fundamentals and technicals of this stock, as well as my projection (opinion) based on both.
Since the Google IPO in 2004, this company has dominated web search, and with its proprietary algorithms, has made quite a mark on collecting, analyzing, and using data for profit. Google has made some notable acquisitions in the last 7 years to help strengthen the brand, but recently has come up a bit shy as revenue and earnings appear to reflect click through’s. The CEO of Google has declared a clean up, and doing so expenses have gone up a bit, causing the recent drop in the stock price. But a look at the bigger picture shows Google is on the right track.
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The analysis above reflects a lot, but lets get to the cliff notes. Revenue and earnings are still rising at a good clip, and in nearly every stat, Google still owns the industry. Even the growth investors still see continued moves higher in Google. Wall street still loves this company, as most analysts rate Google as a BUY.
Technically speaking, the overall picture of Google is a cloud with a silver lining. Lets discuss the cloud first.
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Its all relative… strength that is. RS has been falling since the end of last year when comparing Google to the Nasdaq. In fact the last time Google has been this low was in 2009. Basically what this says is that while technology as a whole has been climbing higher, Google hasn’t kept up, and even falling against its own sector. SILVER LINING – Its gotten way overdone…
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Volatility run amuck – Google has broken out (or down) as seen by the Bollinger Bands on the chart, and if we were to look at moving averages, it has clearly remained on the bearish side since the stock was trading at 610. SILVER LINING - Bands are consolidating, as are moving average crossovers, and the momentum indicators below show a rise off of the April lows. Also check out the bullish pennant formation on the chart over the last few weeks. Any close above 545.75 would signal a short-term move upward.
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Elliott who? The wave count clearly points downward as a double bottom of 520 is projected sometime late summer (just about the time the next earnings report comes out). SILVER LINING – Before a wave 5 can take place, we have to see a Wave 4 retracement of at least 24%, and by the calculations shown above, it looks to be a minimum of 570.
With all that in place, how do you trade Google? First step is to gauge the volatility of the options you are interested in, and remember that the move higher will likely be a short-term move. From an overall glance, credit spreads make the most sense, but again this is based on time, volatility, and personal taste. If technically and fundamentally this all comes together, there will be at least one person at Oasis doing the “Google Dance”.
Good Trading
Tom Gentile
Vice President and Co Founder, Optionetics
