Since my last update on the state of Google’s (GOOG) stock chart, a decidedly more negative near-term tone has emerged. On Sept. 24, I said that while the near-term destiny of Google stock is rather uncertain, its medium to long-term bullish structure remains intact.
Fast-forward to today, and not much has changed beyond the near-term time frames. Pressures on the broader market, however, have begun to weigh on Google stock in the near-term and caused initial technical damage on the charts.
And as usual, there is a lesson to be learned here.
Rallies and Selloffs
While some strong stocks will always hold up relatively better during a market correction than other strong stocks, the vast majority of equities tend to participate (in the near-term) during an initial market selloff.
This is a simple concept, but it’s important to note that conversely, most stocks don’t necessarily have to rise with the broader market during the initial phases of market strength. Clearly, plenty of stocks have to rise during a market advance for it to exist in the first place … but the underlying fundamentals of selloffs and rallies are different.
From a trader’s point of view, this translates into a simple lesson: The trend is your friend.
On to the GOOG chart.
Where’s the Next Stop for Google Stock?
Thanks to the recent weakness caused by Washington uncertainty and marginally worsening economic data, Google stock bumped into its 200-day simple moving average Wednesday for the first time since the November 2012 lows, after snapping its November 2012 uptrend.
Note how on Wednesday, Google stock again slipped lower for an intraday test near its 200-day SMA, but proceeded to bounce.
With GOOG’s earnings scheduled for Oct. 17, it might just remain somewhat rangebound until then and hold above the 200-day. For most traders, the risk/reward in Google stock right now just isn’t good enough to warrant a trade in either direction.
The best course of action is wait for Google earnings to pass and evaluate the charts anew after investors have time to digest the news. A break and hold below the 200-day SMA would damage the chart beyond the near-term.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.