Is the bloom coming off Google’s (GOOG) rose?
It could be. The stock price is wilting, the company is getting “Binged,” and sentiment remains very hopeful. That puts some pressure on the company to come in with not only strong earnings next week but a solid outlook.
As for that solid outlook, GOOG needs to impress with its ad revenue expectations. That could be problematic with the success of Microsoft’s (MSFT) Bing search function.
Unlike the Vista operating system, which has been the butt of many jokes and ad campaigns, Microsoft may have gotten it right with Bing. And while Bing won’t overtake the Google search engine anytime soon, it has to be putting a dent or two in GOOG’s armor.
GOOG is trying to retaliate with its own PC operating system that will be free for netbooks next year. But the company may have a hard time convincing the Street that such an offering will help the stock during the next few months.
On the chart, GOOG is holding on to the $400 level after cresting just under $450 in early June. The shares have cascaded below their 20-day and 50-day moving averages in the process, with the untested 100-day sitting 20 points below at 380. All in all, it’s a tenuous technical picture.
On the sentiment front, analysts and options players seem to be stuck in the good ol’ days, when GOOG couldn’t be stopped. All 20 covering analysts rate the shares a “buy,” with 16 of those being “strong buys.”
The only benefit the stock will see from analysts is for new coverage. But, even then, a strong rating will get lost among all the others.
The put/call ratio has been falling for the past month. Let’s see, the stock price goes down, so let’s pile on the calls. How does that make sense?
Apparently, options traders have faith in GOOG heading into earnings.
With stronger competition nipping at its heels, a lukewarm chart that is depending on support at 400, and unwavering faith from the Street, GOOG is vulnerable.
Anything less than a strong report and outlook could send the bulls for the exits. If that happens, $400 will be a distant memory. So, consider buying puts on GOOG.
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Jon Lewis is the co-editor of The Winning Edge trading service designed to help you make options profits around corporate earnings and other market events. For more information about Jon, read his bio here.
