Another Technical Strike Against GOOG

(and Dorsey decries the "adoration phase" of market sentiment)

By Dr. Duru written for One-Twenty

March 9, 2007


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Three days before the "big correction of 2007," Google's (GOOG) stock printed a technical warning that the risk of more downside was looming large. The stock sold off for two days before the big crackdown on February 27. Exactly two weeks after the first warning, GOOG seems to be printing another warning. The chart below shows GOOG gapping up on the day, running higher and then fading to a slightly lower low...right at the middle-Bollinger Band (20 day moving average). This move also confirms the current short-term downtrend. I daresay that a retest of the support of the 200DMA is in the cards. This retest would exactly coincide with a closing of a large gap up from October, 2006. This potential warning from GOOG came on a day when the NASDAQ gapped up and faded but maintained positive territory. I will be interested to see whether GOOG foreshadows additional weakness for tech stocks (of course, it could all be an interesting coincidence, but the technical weakness in GOOG itself is clear). TraderMike reminds us that a bunch of economic reports on Friday could provide a key catalyst for testing existing resistance levels.

Google


I found a TheStreet.com video, "Woody Dorsey Says the Bounce Won't Last", that does an excellent job summarizing risks in the market based on sentiment. The short piece serves as a good backdrop for me as I wonder whether GOOG is revealing the beginnings of a new leg down. Dorsey claims that the bulls are over-reliant on the hope for rate cuts to buoy the markets. He also debunks the comforting arguments that the market sell-off cannot last given the strong fundamentals in the economy. He cites 1999 as an example of how we can also get rallies that are not supported by the fundamentals (bulls like to make the fundamentals a one-way rationale). "At market extremes, the fundamentals are poor guides." Finally, he points out that folks who put stakes in the ground on this position are really saying that they are not ready (or willing) to change their minds because they have been made very secure by the "prevailing ethos" in the market.

Be careful out there!

DR. DURU®, 2007