Yes, Google (Nasdaq: GOOG) is an exciting company, and its desire to come public through an auction process is admirable, but there is an air of attitude in its lack of disclosure that makes you wonder if it really is built on a rock solid platform or if it’s actually run by a little man behind a curtain. It wouldn’t matter except that this is real life, not the Wizard of Oz… And we’re playing with real money, not golden bricks, ruby slippers, or Munchkins. Okay, some of you may play with ruby slippers and Munchkins (not that there’s anything wrong with that) but the point is that the big money has already been made in GOOG. And the ones who made 150x their initial investment are selling their stock today. For a new GOOG investment to go up even a few fold from here, you’d be talking about a $100 billion company. To go up 10 fold, like the best stock market winners do, we’re talking about GOOG becoming worth more than market heavyweights MSFT and GE. That ain’t gonna happen, folks. So have fun day trading or swing trading, but if you think you’re gonna buy GOOG to put in your portfolio and forget about for 20 years, then retire on, you might be pushing your luck. Regardless…
If you wait, all that happens is you get older.
Got to keep this brief for now, just the facts. We got a follow through day on the 4th day of the attempted rally. Volume was higher than the prior day and above average, although not what you would characterize as powerful. Dampening the volume was the fact that everybody is on vacation in the middle of August. Enhancing the volume and volatility was the fact that this is an options expiration week. Other facts: (1) Nice big white candle with close at the top, and (2) first close above 20-day EMA in a while. There you have it: Follow through day with mixed volume message, positive candle, and close above a widely followed moving average. Fortunately or unfortunately, I don’t think I’ll be touching this one from the long or the short side, at least not in a big way, as my own vacation starts soon.
The past three day’s bounce/rally attempt has come on light volume, raising doubts about its sustainability. However, volume is normally light — and tough to read — in the middle of August because the herd has gone to the Hamptons to see and be seen (very original, guys). The other wrinkle is that this is an options expiration week, which often adds volatility and volume, at least until positions are squared and/or rolled.
This is a 4-year chart of the Cubes (Amex: QQQ), showing the 50-day and 200-day moving averages only (price is hidden). You can see the lines have crossed each other three times in the past four years. First in 2000 to the downside, which was the bubble popping. Then in 2003 to the upside, which was the was the 97% rally from the October 2002 bottom to the January 2004 top. (Yes, Virginia, the rally was 97%+… and yes, it started in October 2002, not March 2003.) And that brings us to the last of the three crossovers, which brings us…
The circled are shows what has happened since my last post, which detailed the aborted rally. You can see it resulted in an immediate downdraft on fairly high volume. The selling didn’t really qualify as mass capitulation, so there is doubt that we’re ready for much more than an oversold bounce, which might therefore prove to be a better place to sell than to buy, depending on the technicals of the rally attempt. Overall things could be setting up perfectly for the classic fall buying opportunity… stay tuned to see if/how that develops in the next couple of months. In the meantime, we’ll be looking for an interesting options expiration week next week.
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.
Today we undercut last week’s low, aborting the market’s latest — feeble — rally attempt. This undercut could be significant, as it also took out the May lows, and did so on increased volume. Also significant is the fact that tomorrow is the monthly employment report, which is often proceeded by lighter volume as traders sit on their hands before the market-moving number comes out. That was not the case today. If we do get a real failure, it could be the 2-3 day downdraft variety that makes the lead on the evening news. And those types of selloffs can lead to bottom formations. We will see. Got to sign off for now, as I am on dialup after moving into a new pad.