Saturday, February 3, 2007

Google (GOOG) - Gap Filling Time?

Remember the 1980's tv spots where the guy cracks the egg into the frying pan and says, "this is your brain". He then turns the heat on, and the egg starts rapidly frying, and he then says, "this is your brain on drugs".

The above chart of Google and that nasty break in GOOG below 50 day moving average is much like the frying pan being turned up on the bulls following the slide-o-rama after earnings which relied heavily on a lower tax rate and higher interest income. All the king's horses and all the king's men (the analysts) upped targets, many to above $600 after earnings, a near tripling of EPS, but to no avail. The real psychological damage (IMHO) was done after hours on Friday when GOOG fell another $4 to $477. Some say Cramer's negative comments sent the stock down. They give Cramer too much credit (and I can't stand the guy). The bulls had their chance since the stock has been flirting with 500 for weeks - the bull pennant was there before earnings, a near tripling of EPS didn't work and this stock is now headed south. Plus, the Viacom-YouTube news was of no help. Watch out for a test of the double bottom in the $455 range in the days ahead. Failure of the double bottom argues for the gap to be filled... yes that big October '06 gap between $425 and $455.
I could put a long term chart up... 3 yrs, but what good is that? That's the problem with a lot of folks looking at GOOG. They see the $100 to $500 move on a longer term chart and think it supposed to happen again and as quickly. $510 has failed twice big time (three times if you count the pre market run to $518 the morning after earnings) and now we're back to $477. I put the shorter term chart up to show that this thing has been stuck at $500 and now is pulling back. The past is the past. Let's look at now. No rocket science with this... it's called c o n s o l i d a t i o n. A filling of that gap would actually be h e a l t h y. But heaven forbid that, since the dimwits who missed out on the 100 to 500 run think they're entitled - in the fashion of Rousseau - to 500 to 700 even as the company digests YouTube and rolls out Checkout, which has turned out to be expensive.
Some folks also try to downplay the after hours move by stating it was mostly 100 to 200 share trades by the small time retail crowd. Huh? 100 to 200 share Google trades are worth between $48,000 and $72,000... that's not small time.
I could get darker here and wonder aloud if the big concept stocks like GOOG and AAPL running into trouble are an indication of risk premium trouble creeping into the markets. But if folks are bitter about Cramer slamming GOOG on Friday night, I won't even go in the risk premium direction.