Gorilla amidst the Internet advertising space, Google (GOOG) flexed its muscle against Tuesday's red tape, wrestling a 'big' 1.28% gain of $3.86 away from the bears with a close of $305.97, above the psychologically important $300 level. Will the Gorilla continue its climb? We think so as we see an empirical edge with double-digit percentage returns on 11-for-11 wins after studying last week's price behavior that comes on the heels of the stock's November-21 'key reversal' day.
Q: Over the course of its history, how does GOOG perform after recording the following five-day price pattern: up, up, (up-or-down), up, up 'big'?
A: According to the 11 previous occurrences of this event, EventEdge indicates that GOOG has shown a very strong bullish edge that peaks 25 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Tuesday, Dec. 9, 2008) is Thursday, Jan. 15, 2009. GOOG rallies in 100% of the cases (11 of 11) by an average of 14.3% relative to the close on the event date. The overall return of the 11 cases is 14.3%, which, based on the close of GOOG on the event date ($305.97), provides a target price of $349.72.
Referencing the 60-minute chart below, look for a pullback as GOOG finds resistance from its 12-week sell-channel trend line, with a hold no lower than $280; after a pullback towards $280, if history is going to repeat its bullish tendency, a reversal back up will give the bulls an inverse head-and-shoulders pattern. A break of the inverse head-and-shoulders pattern will in turn trigger a breakout of the 12-week sell channel as price progresses towards the $350 target. Given that price remains within the 12-week sell channel, consider this a counter-trend trade.
Finally, as another potential resistance factor, be aware of the 50-day moving average on the daily chart as the moving-average parallels the 12-week sell channel, just outside the upper trend line.
To view and modify the event parameters defining this study, click here to launch the EventEdge® tool.
Mr. Jay Pasch is a private futures and equities trader based in Minnesota. He may hold positions in the instruments mentioned in his trading ideas.
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Google Inc. - Bounce Time - November 12, 2008
