Bullish but Bearish (GOOG)

I know the title is a bit controversial on this one given the fact that Google is currently in a strong uptrend and just made a 52 week high by breaching the $800 level. This is not one of those articles telling you to short Google (at least not yet) given that you will likely get burned a little before the trade goes your way given the strength of the trend up. This article is however a cautionary article telling you to be careful when trading this tech giant and advising you to keep your stops tight.

Lets look at the chart before we discuss the fundamentals:

GOOG $800

GOOG $800

As you can see there is nothing too bearish on the technical side for this stock. The MACD is positive, the Average Directional Index is showing that there is a strong trend up, the moving averages are showing that the uptrend is still intact. So why should we be cautious when trading Google ?

A few months ago Apple’s technicals looked almost as good as Google’s do now. Traders just kept buying the tech giant because the technicals were magnificent. It seemed like everyone wanted a piece of Apple until there was no one else left willing to buy at such elevated prices. So how does this tie into Google you ask ? The problem with Apple having a valuation of $700 per share is the same as with Google having a valuation of $800 per share. Apple’s business depends solely on two products (the iPhone and the iPad) both consumer products that could at any point become obsolete. Most of Google’s business is centered also around a single product (search).

While I believe that Google has a safer business than Apple since advertisement isn’t going away anytime soon I also believe that they will continue to struggle to monetize the ever growing mobile audience. Google’s other side businesses such as their API and web services business also make Google a safer play than Apple in the long term but they don’t really justify a price of $800 per share as of now.

Overall just keep stops tight since you never know if this giant will be the next falling to $450 a share much like Apple. If you’re a swing trader continue watching those moving averages for any sign of trouble.

Posted Wednesday, February 20th, 2013 under Specific stocks.

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