Google Firms At Support

09/16/08 08:31:41 AM

by Arthur Hill

Google formed a bullish engulfing pattern at long-term support, and follow-through would give way to an oversold bounce.

Security: GOOG
Position: Accumulate

Figure 1 shows Google (GOOG) over the last 12 months. The stock declined to 400 in March, bounced, and then declined back to the March lows. These lows marked support at 400 in March, and the stock is currently testing this support level in September.

FIGURE 1: GOOG, DAILY. The stock declined to 400 in March, bounced, and then declined back to the March lows.

Graphic provided by: TeleChart2007.

The indicator window shows the price relative, which compares Google to the Standard & Poor's 500 ETF (SPY). The price relative also declined to support from the spring lows and bounced. This bounce was pretty strong and reminiscent of the April surge. These bounces show a surge in relative strength as Google outperforms SPY. Relative strength is a good sign and could foreshadow a short-term breakout.

Figure 2 shows daily candlesticks with a bearish engulfing pattern at support. The stock opened weak and closed strong to form a long white candlestick on September 11. This candlestick engulfed the prior two black candlesticks and shows one day of serious strength. GOOG consolidated the last three days and a break above 442 would be short-term bullish (red line).

FIGURE 2: GOOG, DAILY. Here are daily candlesticks with a bearish engulfing pattern at support. The stock opened weak and closed strong to form a long white candlestick on September 11.

Graphic provided by: TeleChart2007.

The bottom indicator window shows 15-day relative strength index (RSI) moving from oversold levels. This indicator becomes oversold below 30. Google was oversold for a few days and then RSI moved back above 30 with the bearish engulfing pattern. This is the first step to an oversold bounce. Follow-through to the bearish engulfing is the second step. The upside target would be a resistance zone around 500 (gray rectangle).

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Google Firms At Support

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