Is Google Headed Higher?

Mar 24, 2008: 11:15 PM CST

Google (GOOG) stock has been beaten down by the bears since last November, when the stock made an all-time high near $750. Recently, the stock traded to a recent low of $425, but may the stock be forming a base?

The Daily chart shows a recent positive momentum divergence, following a bear-flag continuation patter which recently achieved (and exceeded) its price projection target. Markets usually attempt counterswings following a successful ‘measured move’ out of the pattern, which could be what we’re having right now.

Price broke strongly above the 20 period moving average, increasing over 6% on Monday, but price has a little further to go to the upside to resolve the divergence properly.

In fact, I would project a potential target resolution near $500, which would be just beneath the falling 50 period moving average. One might even consider this a ‘magnet’ trade that would eliminate a large percentage of ‘shorts’ in the stock, while simultaneously drawing in ‘bottom-fishers’ searching for value.

We can’t forget that the trend is still strongly downward sloping, and the moving averages are in the most bearish orientation possible.

Nevertheless, a counterswing up is probably overdue and is most likely occurring at this moment. There could be a $25 upside target to play for if you’re rather aggressive – maybe you’d rather use a few options rather than outright share purchases if you’re feeling like trying to catch a falling knife? Be careful either way.

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