The Stock
Google Inc.
Recent price
$453.73 (U.S.)
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 Co. and Media General Inc. flanked other movers like McClatchy Co. and Journal Communications Inc. However, media stocks have been recovering notably since the spring. The Powershares Dynamic Media Portfolio exchange-traded fund is Stock Trends Bullish and has outperformed the S&P 500 in each of the past three weeks. This ETF is invested in the stocks of 30 firms, with Walt Disney Co. and Liberty Media Corp. among the top weightings.
The Trade
Despite its technology veneer, Google Inc. is a bellwether media stock. At the height of its last bullish trend, Google's stock traded at $747 (U.S.) in November of 2007. A year later, 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 in as the shares move above the $450 level. Continued economic news confirming recovery will once again make GOOG a solid trending stock.
The Upside
Should Google's shares advance significantly through $450, investors can anticipate a 10-per-cent return on the next leg of the stock's bullish trend. The search deal between Microsoft and Yahoo is a sideshow for investors keying on a consumer recovery. Although GOOG has failed to keep pace with the broad market over the past month and trading 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 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 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.