Shares of technology giant Google (GOOG) have largely traded sideways for the past few months, and in a narrow range. However, the price action (through a multimonth lens) has been constructive and could favor a strong fourth-quarter move in Google stock that active investors can leverage.
On July 16, Google reported quarterly results that sent GOOG stock up more than 4% the following day in what appeared to be a technically significant move on a nice bump in volume.
In retrospect, though, momentum quickly faded and the stock settled back into its consolidation phase, suggesting that more time is needed before a next better and more sustainable rally can unfold.
With a company like Google, the daily flurry of rumors and news bits are enough to drive even the biggest news-junkie trader crazy, which is why in my opinion it’s important not to micromanage any trade or analysis in GOOG stock.
Late last week, rumors surfaced that Google was interested in taking a 40% stake in e-commerce company eBay (EBAY). (Ebay was quick to deny any conversations with Google while Google declined to comment.) Google stock dropped as a result, but the price has rebounded since, and by Wednesday’s close actually traded higher than before the rumor last week.
My point is that the price action in GOOG stock continues to be one of sideways consolidation, and much of the news around the company has been noise that was unable to significantly move the stock, thus sucking many unaware traders into overtrading a stock that just isn’t just yet ready to move in a more meaningful way.
Google Stock Charts
On the multiyear logarithmic chart, note that shares of Google remain in a sturdy upward trend, holding above the lower end of the channel (black parallels) as well as above the 200-day simple moving average (red line). Until either of these levels fail to hold, and in line with simple trend-following rules, GOOG stock is better considered as a buy than a short.
On the daily chart, we note that Google stock for the most part since this spring has been working on building a series of lower highs as marked by the blue bubbles, though they are increasingly being pressured by a series of higher lows since the stock bounced sharply off its May lows. Since the second half of summer, GOOG also has spent the majority of its time curling up below the diagonal resistance line, thus increasing the odds of an eventual break past resistance.
Active investors and traders could circle the $600 area. If and when Google stock manages to push above there, a year-end rally into the mid-$600s could quickly unfold.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
