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Predicting Google


...the best GOOG can do now is to thrash around here for a few months while it tries to rebuild a following.

Editor's Note: This article was originally written at 11:00 AM ET

I was not able to get my thoughts ready in time before Google (GOOG) dropped today - I was going to start by saying the sell setup in GOOG this morning was very reminiscent of what happened to Phelps Dodge (PD). Now it is already plunging.

Anyway, we had already prepared readers for this outcome. On Feb 10th we noted that we were looking for GOOG to find a trading low between the blue demand line and the 200-day m.a. The turn there was successful.

Then we expected the rebound to run out of gas, with resistance stated as being between the $399 level and the 50-day m.a. We wrote, "All this means is that resistance should start just below $400 and a test of the 50-day should be sold because GOOG still has not proven that $353 is a lasting low until it can turn from there at least twice. And the price to sales multiple on Google is still at nosebleed levels even if the consumer does not cocoon. Altogether we think Google's ad rates will be plunging in coming months as companies balk at paying high rates given flow-through from searches is very disappointing lately."

These comments are still true IMHO. Having reversed just below the fib 38% target of $399 today, the plunge is taking the stock back down to test the 200-day again. In many ways this is a broken stock, as we've said before. However, traders can be expected to try to buy it at least temporarily around the $337 - 340 level (around the last low and the 200-day m.a.). But the margin calls and gnashing of teeth should make lifts temporary. The shares are still grossly overpriced. We think the best GOOG can do now is to thrash around here for a few months while it tries to rebuild a following. It is reasonable to also expect it could try to find support by closing the gap between $320 and $311. (Note: It does not even appear to be on the Top 100 Nasdaq shorts list, so don't expect too much lift from covering.) TRP

Click on the chart for a full page version.

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