When I last discussed the state of the charts of Google (GOOG) on Dec. 6, I laid out my case for GOOG stock to be a rather straightforward long-side setup into year’s end. From there until Dec. 31, Google stock then proceeded to rise just about 5%, closing the year on a high note.
Well, yesterday, GOOG stock rallied yet again, this time by another 2% or so to set new all-time highs yet again, and even still, I think Google works on the long side as a momentum play.
Considering that institutional investors are currently busy putting new money to work — and understanding their herd mentality and often simple focus around a few big names — it shouldn’t be all too surprising that GOOG stock is seeing an early January pop. To give the stock a little further boost, JPMorgan yesterday mentioned that it is maintaining an “overweight” rating on GOOG stock. It’s also raising its price target from $1,100 (which Google has well surpassed) up to $1,305 — another 15% higher from here.
Through a purely technical lens, GOOG stock continues to act well, yet slowly but surely is beginning to smell rather overbought in the medium term.
Since late 2012, Google shares have traded above and respected their 200-day simple moving average (red line); at present, however, GOOG is trading just about 24% above the MA, which in the past has led to a consolidation move at the very least. Also, while GOOG stock has made higher highs from October until year-end, momentum as measured by the RSI (blue line in lower part of chart) continues to make lower highs.
This is no sell signal, per se, but just indicates that upside momentum is waning.
On the daily chart, GOOG stock continues to trade higher in a stair-step way, which is to say that breakouts lead to orderly consolidation periods every time the upper end of the trading channel (blue parallels) is reached.
With Tuesday’s rally, GOOG has once again reached the upper end of the trading channel and also is (in the near-term time frame) looking increasingly frothy. Those long the stock will have to work with trailing stops, because Google stock is trading at all-time highs and thus lacking any upside reference levels.
For my part, I am currently not involved in GOOG and am patiently watching from the sidelines for better entry levels after Google’s stock has consolidated either in time (sideways) or in price (lower).
Like what you see? Sign up for our daily Beat the Bell e-letter and get investment advice delivered to your inbox every morning!
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.