Google – a glimmer of hope?

Google (GOOG) is a stock we’ve liked for a while.  It’s part of a theme that our Williams Inference service highlightedseveral quarters ago:  cloud computing.  That’s the idea that more and more of our computing applications will be housed, not on your desktop’s hard drive, but on the internet, the so-called Cloud.

But since late 2007, when it hit its peak of $747, it has struggled, falling as low as $247.30 in the depths of the financial crisis.  It has since recovered 50% of that loss, but its peers have far-outperformed it.

There may be a glimmer of hope for the stock in that Fortune magazine is just now recognizing the company’s situation, featuring it on the cover of its most-recent issue, shown below.

As I’ve mentioned here before, by the time a company or an issue moves from deep in a publication to the front cover or page, it’s often a sign that the worst is over. 

One piece that’s missing to complete this picture of pessimism is gloom amongst the analysts.  There are 37 who follow the stock, with 86% of them rating it a “buy,” while five say “hold” it.  That’s considerably above the average for all U.S. stocks.  The analysts’ price targets have come down, however.  At the end of 2009, the average price target was $662, while the stock was at $619.  Now, with the stock at $503, the average price target is $625.

 Technically speaking, if we look at the stock’s performance since late 2009, we can see that it bounced nicely off the July low and is now facing its first serious resistance, the 38.2% Fibonacci retracement of the move from the 2009 high to the 2010 low.  That price is $507.42.  That’s also a level that proved insurmountable twice in June and earlier this month.  After that it’s the 50% retracement at $530.54, and then the 61.8% retracement at $553.66.  After that, it’s the 2009 high.

A point and figure (P&F) chart of the stock (below) shows modest improvement (i.e. a couple of higher highs), but the stock remains in a downward trend.  The resistance is much easier to see on this type of chart.

Google bears watching.  The contrary indicator of the cover story would be validatedby a move above $508 and a reversal of the P&F trendline, which would come at about $524.

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