Google (NASDAQ:GOOG) broke the $800 mark and set an all-time closing high Tuesday, and set an intraday high near $809 today before sliding back. Because the most recent ascent in price mimicked that of a solid double diamond ski slope, let’s review where we are and where GOOG might go in the near future.
Like most stocks, Google rallied strongly off the late 2008/early 2009 bottom and (in the bigger picture, anyway) never looked back. After trading in a narrowing range, the stock finally broke past a multiyear resistance line in August 2012. In November, GOOG revisited the breakout level, which then launched it to its most recent rally. As such, technically, the stock has behaved well.
Looked at a different way, note the steady retracements that Google took over the course of this multi-year rally. GOOG has a high propensity to find support between its 50% and 61.8% Fibonacci retracements of any swings. In other words, whenever the next pullback in the stock price occurs, look for the 50% or 61.8% retracement of the swing in question to hold as potential first support.
Google also has been a relative outperformer in recent months vs. the technology sector as measured by the Technology Select Sector SPDR (NYSE:XLK), which counts GOOG as its second-largest holding (7.33%) right after Apple (NASDAQ:AAPL) at 14.78%. From a technical point of view, this might mean that some mean reversion could be due in the not-too-distant future.
Also, the stock’s current distance from its 200-day simple moving average indicates that GOOG might be extended and due for a pullback. Looking back to 2010, when the stock moves around 20% past this moving average in either direction, it most often mean-reverts back to the moving average. Currently, Google is just about 20% past its 200-day SMA, and if the stock mean-reverts back, it could fall to around the $680 mark.
Certainly, there have been times when GOOG was much further extended beyond its 200-day SMA, but for a near-term analysis and some context, the 20% mark serves its purpose.
From a momentum perspective, the stock is overbought. However, momentum oscillators are better used when they flash either positive or negative divergence vs. price, which currently isn’t the case in Google.
The fact that GOOG might be coming to a pause here near the $800 mark shouldn’t be surprising. Big, round numbers offer simple risk levels that both the retail and the institutional crowd find attractive, in one way or another.
All in all, Google has had a great run off its Nov. 16 lows — which, I might add, coincided with the lows in the S&P 500. As it’s not my style to chase stocks higher (or lower for that matter), I would prefer some backing and filling in the stock for the time being before I look for a better risk/reward setup on the long side.