The price action in Google continues to be uninspiring, especially considering how strong the stock was earlier this year. For all intents and purposes, Google was a market leader. To be sure, others have more than picked up the slack, namely FB LNKD NFLX TSLA Z, and biotechs.
However, there is now a distinct possibility of a major, classic head and shoulders top being formed on the search giant, dating back to May. The pattern has not yet confirmed. But, as they say, the bigger the top the bigger the drop.
I am going to lay out the elements, via Edwards and Magee, of the head and shoulders top. Then I will present the chart and ask for your opinion as to whether this is the real deal, or simply another bear trap.
Note the volume pattern, in particular, and how important it is to satisfying the elements of the pattern.
A close below $845 triggers the pattern, while another close above $905 likely negates it.
- A rally which ends a more or less extensive advance on heavy volume, and which is then followed by a Minor Reaction on less volume; this is the left shoulder;
- Another high-volume advance which exceeds the high of the left shoulder, followed by another low-volume reaction which takes prices down to near the bottom of the preceding reaction, and below the top of the left shoulder high; this is the head;
- A third rally, but on decidedly less volume than accompanied either of the first two advances, and which fails to exceed the high established on the head; this is the right shoulder; and (4) a decline through a line drawn across the proceeding two reaction lows (the neckline), and a close below that line equivalent to 3% of the stock’s market price. This is the confirmation of the breakout.
Source: Edwards, Robert and Magee, John. Technical Analysis of Stock Trends 9th Edition; (c) 2007.
What say you? The Chess Factor begins…now!
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You know what else is uninspiring, their absolutely awful Chrome TV commercials… I will trade short term options on GOOG from time to time before I go long for the release of their self driving car in ~5yrs.
Good point, Monte.
I’ll vote it is. The pattern also appears to have a slightly downward sloping neckline, which I think is a plus. And won’t hurt the overall market is pretty extended.
Good points, thank you.l
I like them fundamentally, longer-term. I think they’re doing what $AAPL isn’t, getting into diverse industries. It seems Android was a success, they own youtube, they’re making cheap netbooks, and on and on.
They have made some good moves, no doubt.
chess, pull the chart back to the long term trend from July 2012. I’m am looking for this to hold although it may be pierced for a day or two. Any failed move down in the H&S pattern could result in a fast move higher. The first attempt at end of august got bought.