Thursday, July 8, 2010

GOOG Watch

The search and advertising behemoth Google Inc. (GOOG) has come to the end of its "joy ride", writes Alan Farley over at

It's a stunning statement to make about a company of overwhelming global dominance in its sector, and whose shares, by the way, managed to travel from a hundred bucks to nearly $750 in three years as a public company. Could Mr. Farley be right?

As always, let's look at the chart.

Near term, GOOG is trading in a pattern typical of megastocks: A spring peak followed by a decline and a struggling attempt this week to rise again.

The technicals are also a typical mixed bag, mainly bearish, but with a few stirrings of bullishness in the more sensitive indicators, such as the direction of the macd and the fast stochastic.

In the longer term, GOOG is engaged in a somewhat unclear pattern that seems sort of bearish since the November 2007 all-time high, but then again, could be some sort of massively long-term triangle pattern.

It shows a higher low (compared to the opening price), a lower high, a lower low, a higher high, and the current fall since last January that has retraced about half of the previous leg up.

All I can see with certainty is a downtrend that is in its seventh month. The broader view escapes definition.

From the chart, I'm starting to like GOOG as a short-term play. There've been higher highs and higher lows for three days running. Longer term, not so much. I'd need to see a month or so of higher highs and lows to be convinced that the trend had changed.

However, Mr. Farley, in his write-up, doesn't rely on charts. His analysis is a story that goes something like this: Google redesigned its news sight ( into a "monoline monstrosity" that drew nasty comments by bloggers, showing that the company has lost touch with its "tech-savvy customers", much as Microsoft did, and moreover, they stupidly refused to kowtow to the Chinese and embrace search censorship.

The argument relies on some fairly astounding (and shaky) (and unproven) assumptions:
  • The news site revenue is really significant to GOOG's bottom line
  • Readers prefer a multi-column rather than mono-column layout
  • GOOG's main usership these days is techies
  • The news site design decision is way out of touch with customers in a way analogous to Microsoft's experience.
But none of that is necessarily true. By the numbers:
  • Google's quarterly report says two-third of revenue comes from Google sites, but it doesn't break it down by specific product. Who wants to bet that 99.99% of that revenues from from the search results pages, from searches on, not the news site at all?
  • I like mono-column, myself, finding it easier to read. Especially for a quick overview of something. Who's to say that I'm in a minority? The New York Times has done well for years and years with a similar, single-column layout. So, before buying Mr. Farley's aesthetic conclusions, I'd like to see some polling data, eh? It's a fact-based-trader thing.
  • The techy-user thing is a throwback to the old stereotype of the Internet. These days, the web is ubiquitous. It's not just for techies anymore. This, I think, is probably the silliest item in Mr. Farley's story.
  • Out of touch? Again, show me the polling numbers. Like Microsoft? That company was visibly mean as it tried to establish software monopolies. I don't see anything similar with Google. They're big, but I think generally seen as benign. Also, I would dispute that Microsoft lost touch with customers on product. It's operating system still dominates. MS Office still dominates. A funny sort of out-of-touchedness, when your customers stick with you.
I've left China off the list. Whether someone wants to go along with dictatorial censorship or not is a matter of personal ethics. Google's managers (and I) don't like censorship. Mr. Farley, apparently, has fewer scruples.

GOOG announces earnings on July 15 after the close, and we we'll be able to see the impact of Mr. Farley's story points on the financials. The last quarterly report showed revenues up 23%, in the midst of the worst recession since the 1930s. Earnings per share were up 35% from a year earlier.

The Great Reflation: How Investors Can Profit From the New World of Money
OK. The credit bubble burst. Housing, burst. Shockwaves reverberated. Markets collapsed. What lies ahead as we reemerge from the wreckage.

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment. No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
  • psar - Parabolic Stop and Reverse
  • adx - Average Directional Index
  • pps - Person's Proprietary Signal
  • ma20 - 20-day moving average
  • macd - Moving Average Convergence-Divergence
  • sto - Fast Stochastic
About the glance: The colors indicate the state of each signal.
  • trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
  • adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
  • psar, pps, macd: green for bull mode, red for bear
  • sto: green for overbought, red for oversold, yellow for the neutral zone.

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