Is Google Poised for a Larger Breakout?

Jun 19, 2008: 10:00 AM CST

Google is currently ‘trapped’ beneath its key moving averages on the daily chart, and finding key support on the weekly chart. Might the recent consolidation pattern give way to a larger breakout sometime soon?

Let’s look at the daily chart to see the consolidation:

Price is strangely trapped between its key moving averages, and is clearly using the 50 day EMA for support and has been trading tight to its 200 day moving average.

Typically, large volatility moves come from rangebound conditions, such as what we have in the daily chart. After the expansion move from March to early May, gaining almost $200, price is consolidating the gains it recently made.

One could even imagine a triangle consolidation (converging trendlines) being drawn around the price recently to help visualize the winding down of ‘value’ by buyers and sellers.

The weekly chart looks more bullish, as support is coming in from the key weekly moving averages:

Notice the key consolidation (or overlapping) of the 20 and 50 period EMAs. Also, you might can see the slanted upper trendline more clearly on this chart. It almost looks as though it is building a descending triangle, which typically is known as a bearish pattern, but the price is finding support about its key moving averages.

Also, one word of note – notice the sharply declining volume that has taken place since April. Often, volume “dries up” during a consolidation period as ‘value’ is established and buyers and sellers are satisfied, and there is no ‘urgency’ to buy or sell. The moment price breaks this equilibrium, there could be urgency on one side of the market, which could birth a new short-term price move or trend.

We can never know for certain in advance which way a stock will make a breakout move, but you can place tight stops and play for a relatively larger target when price eventually ‘tips its hand’ and reveals the likely direction of future short-term prices, which could set up a profitable trading strategy with potential edge (small stop with large target).

For a little more detailed analysis on Google (GOOG), and application of Gann trading tactics, see Joel Stahl’s post “Gann Made Easy.”

Keep your eye on this stock to see what happens!

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