THE STOCK: Google
RECENT PRICE: $443.05 (U.S.)
THE TREND: A sign of an improving economy can be found in the revival of media stocks. Bullish breakout moves by a number of media plays helped populate last week's Stock Trends Picks of the Week report, thanks perhaps to a positive Barron's story on the sector's underlying value. Surprising advances by New York Times and Media General flanked other movers like McClatchy Co. and Journal Communications .
However, media stocks have been recovering notably since the spring. The Powershares Dynamic Media Portfolio exchange trade fund is Stock Trends Bullish and has outperformed the advancing S&P 500 in each of the last three weeks.
This ETF is invested in the stocks of 30 media companies, with bullish trending Walt Disney Co and Liberty Media Co. among the top weightings. Investors in the sector should be further encouraged by the better-than-expected U.S. second quarter GDP numbers announced last week.
THE TRADE: Despite its technology veneer, a bellwether media stock is Google Inc. At the height of its last bullish trend Google's stock traded at $747 in November of 2007. A year later, in the darkest hour of the U.S. economy, it bottomed at $247. The stock's recovery since triggered a Stock Trends Bullish Crossover in May when GOOG hit the $390 level.
A Bullish Crossover is an important market timing signal that denotes the 13-week moving average trend line crossing above the 40-week moving average trend line. This technical "event" generally closes the door on a bearish trend and introduces a new bullish trend. Google's shares have advanced another 14 per cent since the Bullish Crossover, but investors can scale into a position as the shares move above the $450 level. Continued economic news confirming economic recovery will once again make GOOG a solid trending stock.
THE UPSIDE: Should Google's shares advance significantly through the $450 level, investors can anticipate a 10 per cent return on the next leg of the stock's bullish trend. The announced search deal between Microsoft and Yahoo is a sideshow for investors keying on a consumer recovery evident in this media stock revival. Although GOOG has failed to keep pace with the broad market over the past month and trading activity last week was relatively thin, investors can anticipate growing market bullishness to improve trading volume as the stock generates renewed price momentum. This could be a $500 stock before the kids return to school.
THE DOWNSIDE: The fine print of this trade reminds us that a sluggish economic recovery threatens much of the summer rally in stocks. Google's position as a market leader in its space and dynamic challenges facing the media landscape are secondary concerns that shape the risk profile of this trade. Trend line support is currently at the $400 level - a drop of 9 per cent from the current price. Stock Trends denotes this trend violation with a Weak Bullish indicator and would signal an exit on a current trade.
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to http://www.stocktrends.ca/