Google (GOOG +$9.74 or +3.16% to $317.91) is not a currently featured stock, and important lessons can be learned from this previous market leader that has experienced a technical breakdown. Its last appearance before being dropped from the CANSLIM.net Featured Stocks list included an annotated graph showing a technical violation on an upward trendline on January 4, 2008 under the headline "Search Engine's Stock Stalls Out" (read here). The detailed analysis pointed out that the stock had "gapped down and triggered technical sell signals as it suffered a considerable loss on higher volume than the prior session, violating its 50 DMA line and breaching an important upward trendline."
GOOG had rallied $188 higher (+34%) after it was first featured on Friday, September 21, 2007 in the CANSLIM.net Mid Day Breakouts Report (read here). The stock is now more than -47.2% off its all-time high. Fundamentally, it is showing a worrisome trend of decelerating sales revenues and earnings increases. The company's sales revenues and earnings increases are no longer above the minimum +25% guideline of the investment system. Fewer top-rated fund managers are holding GOOG shares today, a clear sign that some institutional investors (the I criteria) have wised up to the fact the search giant's prospects are less promising.
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Google Inc (GOOG +$1.69 or +0.47% to $359.69) is not a currently featured stock, but it may be worth another look for any important lessons that can be learned from a previous market leader that has experienced a technical breakdown. It made its last appearance in this Featured Stock Update section with an annotated graph on January 4, 2008 under the headline "Search Engine's Stock Stalls Out". The detailed analysis pointed out that the stock had "gapped down and triggered technical sell signals as it suffered a considerable loss on higher volume than the prior session, violating its 50 DMA line and breaching an important upward trendline." When it was soon thereafter dropped from the CANSLIM.net Featured Stocks list on 1/16/08, it had closed the session at $615.95.
The stock is now more than -50% off its all-time high trading at $395.69. Fundamentally, it is showing a worrisome trend of decelerating sales revenues and earnings increases. While the increases are still above the +25% guideline of the investment system, the market is a forward looking mechanism and it sees the prospects of future earnings growth are not favorable. GOOG was first featured on Friday, September 21, 2007 in the CANSLIM.net Mid Day Breakouts Report (read here).
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One of the critical characteristics of successful investing is knowing when to sell. Investors are best served when they buy based on the combination of strong fundamentals and technicals, then sell based on the technicals. The reason is because fundamentals often tend to lag a stock's technical condition and come to light later to help explain the technical chart action after the fact.
Google Inc. (GOOG -$28.33 or -4.51% to $657.00) gapped down today and triggered technical sell signals as it suffered a considerable loss on higher volume than the prior session, violating its 50 DMA line and breaching an important upward trendline. Meanwhile, the overall market ended its current rally. The next level of support is GOOG's prior chart highs near $560. Google was featured on Friday, September 21, 2007 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $558.68 pivot point and a $586.61 maximum buy price. That was the day GOOG triggered its latest technical buy signal when it rallied above its pivot point with gains backed by enough volume to trigger a proper technical buy signal. Google has rallied up as much as $188, trading +34% higher since it was featured in yellow on September 21, 2007. Technically, GOOG traced out a series of lower highs as this high-ranked leader worked on building a new base. Disciplined investors know that during market corrections the "M" criteria argues that they should avoid buying stocks until at least one of the major averages produces a sound follow-through day.
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A classic example of the success enjoyed by many CANSLIM.net readers usually starts when an investor reads a CANSLIM.net report and buys a featured stock before it has risen above the pivot point by greater than 5%. After a stock breaks out above its pivot point, there is only a +5% window that investors have to purchase the stock under the proper guidelines. Once a stock rises above the "maximum buy price" the risk of a shake out balloons, meaning that even a normal retracement in the stock might force you to employ the 7-8% loss cutting rule. Much can be told by the stock's daily action in the weeks and months that follow a breakout. Typically, a light volume and orderly pullback suggests that the bulls remain in control. However, high volume pullbacks that violate support paint a totally different picture.
Google Inc.(GOOG -$8.85 or -1.22% to $732.94) hit another fresh all-time high on Wednesday before overall market weakness dragged it to a lower close. Google was recently featured on Friday, September 21, 2007 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $558.68 pivot point and a $586.61 maximum buy price. That was the day GOOG triggered its latest technical buy signal when it rallied above its pivot point with gains backed by enough volume to trigger a proper technical buy signal. GOOG sports a very healthy Earnings Per Share (EPS) rating of 99, the highest possible reading, and a very strong Relative Strength (RS) rating of 94. It resides in the Internet- content group which is currently ranked 2nd out of the 197 industry groups listed in the paper, in the much coveted top quartile group needed to satisfy the L criteria.
Google has rallied up as much as $187, trading +33% higher since it was featured in yellow on September 21, 2007. Technically, Google is now considered "too extended" from a sound base to be considered buyable. A light volume pullback to this stock's 50 DMA line (now $600.89) may offer investors another chance to accumulate this very strong stock. Disciplined investors know to avoid buying stocks extended above the maximum buy point, because doing so is considered "chasing" and typically hinders performance. As long as this high ranked leader continues trading above its 50 DMA line, the bulls remain in control. An upward trendline connecting its recent chart lows may be used as an initial technical support level to watch, and an eventual violation of that steep line may be considered a signal to lock in some profits. The action in GOOG exemplifies how higher priced stocks have the ability to produce great gains, despite the common belief that considerable gains are more easily found in low priced stocks. Adding to that point, those who are regular readers of CANSLIM.net reports have likley noticed that the maket has been mostly favoring the big cap stocks this year. (The market commentary in the November 2007 issue of CANSLIM.net News summarized the overall market action well. Read here).
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