November 25th, 2005

A Chartist’s Opinion on Google (GOOG)

A reader wrote for an Stock Chartist opinion on Google (GOOG – click on chart to enlarge):

Clearly, GOOG has had a huge, and nearly continuous, upward momentum. It has nearly tripled since it’s much awaited IPO on August 20 2004 with what one could only call “hesitations”, rather than “consolidations”. After the initial 80% run-up to November 3 2004, it continued in a upward sloping channel, in and of itself an extremely bullish sign. Another 3 1/2-month over 70% run-up to July 20, 2005 ending in a 4-month consolidation (270-300). The latest leg, which began on October 21 mirrors the overall market and has added 37% more in just 24 trading sessions since gapping through a resistance level (not clearly visible on this 2-day bar chart)!

By connecting the upper and lower boundaries of the two consolidations, one can clearly see the upper and lower boundary trend lines of an upward sloping channel that GOOG is now touching. There’s a high probability that GOOG will shortly begin another consolidation, along with the rest of the market, to consolidate the huge 15-months’ move and a low probability that it has sufficient momentum to now breakthrough the upper boundary of the channel.

It’s important to reiterate that 50% of a stock’s move is determined by the overall market and 30% by the industry group. There’s a universe of over 8000 individual stocks and EFT’s to chose from, many about to make significant gains by breaking through resistance trendlines and, therefore, have greater profit opportunities. Anyone putting money into GOOG at this time would, at worst, be assuming significant risk or, at least, incurring opportunity costs.

Chasing Google, as familiar and in vogue as it might be, is the sort of focused decision-making that ignores the condition of the market and sectors and is, I believe, investing through a rear-view mirror.

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