Google Inc. potential gains harder to detect at this point

Feb 2nd, 2011 – Comment

Your entry point on January 21 is a classic case of arriving at the party late and having to cover the bill!


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Hello Lou,

I purchased GOOG:US on Jan 21st 2011 at US$638.38. Since then, the stock has been GOING down and I don’t understand why.

I had purchased some AAPL:US shares and saw they were doing well. I did  some research and a lot of analysts and close friends were saying technology is booming (I’m talking about Android). Also part of it is that I thought they were going to acquire Groupon and maybe Facebook…So I looked at the GOOG’s trend and saw they were doing pretty good.

 That was the main reason I bought the shares but I still don’t understand why it would go down so fast. Could it be because of the recent change in the Management? Is it because of the protest that’s going in the Middle East?

Should I hold it hoping it will go back up or should I sell?

Thank you in advance for reading my email

Sincerely

William

Hi William,

Great question!  Here are some of the factors in play when it comes to Google, Inc. ( GOOG NASDAQ). The first thing that I can see is that information technology stocks enjoy a period of seasonal strength that runs from early October to mid January. Your entry point on January 21 is a classic case of arriving at the party late and having to cover the bill!  Another factor that is evident is the resistance at $640.00 that has been in play since 2007. 

From my vantage point the factors that contributed to the sell off are seasonality and resistance.The basic tenet of  of technical analysis is that in the price there is much knowledge. The price of the stock incorporates all the factors in play making it the best indicator of trend, support, and resistance. The charts always provide information not revealed in the news stream.

The three year chart illustrates the seasonality when we look at the sweet spot in both 2010 and 2009. What seasonality expert Brooke Thackray extols is that of you are going to invest in a stock you are best to do so when probability is in your favor.

The chart also depicts the resistance at $640.00. Each attempt to breakthrough has failed and its something to keep in mind when taking a position in a stock. What is also evident is that there is support at $600.00.

The six month chart provides a good view of other indicators that you should be aware of when considering buying a stock. The MACD and RSI both signalled a buy in early September of 2010 that saw GOOG move from $460.00 to $640.00 by early November for a 39% return.  Truly a sweet fall treat!

The MACD and RSI then signalled a pullback from the November highs to $560.00. In early December there was another buy signal that saw the stock move from $560.00 back to $640.00. If you look closely at your entry point on January 21 you can see that both momentum indicators were suggesting a pullback.

You asked if you should hold or sell. Usually that question is a request to confirm a desire to sell. I always advise investors that if they are uncertain as to how to proceed find safety in cash. Then when the trend is more visible you can make another decision. The best outcome that I can see at this point is a range bound trading pattern between $600.00 and $640.00.

Happy Capitalism!

 

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