The Pullback Flag Retracement in Google GOOG

Jun 13, 2009: 2:13 PM CST

Google (GOOG) formed an interesting pullback retracement to the rising 20 day EMA, forming a possible Bull Flag in the process – let’s look at it in more detail.

This sets up a low-risk buying opportunity for aggressive traders if price is able to hold above the 20 day EMA at $420 per share.

Using classic bull-flag price projection targets, we would expect a possible target of around $470 (the ‘pole’ is roughly $50 which, when added to the $420 expected bottom of the flag becomes $470).

In an uptrend, moving averages are useful for setting up trades on subsequent pullbacks to the 20 or 50 EMA.  The recent impulse into new 2009 highs was relentless in buying and created a nice uninterrupted momentum run from $390 to $445, taking bulls along for the ride.

Price has now formed a 45 degree angle pullback in a ‘flag’ pattern.

Notice that a new relative (but not absolute) momentum high has formed into the June highs, hinting that higher prices might be around the corner.

Now, let’s look at the caveats.  The overall stock market is overextended and I just recently highlighted a “Dow Theory” Sell Signal (or non-confirmation) so now might not be the time to get aggressively long.

Should price fail at this level, a ‘magnet trade’ would set-up to test the rising 50 day EMA and it could happen quickly as stops were taken out.  Bulls would likely mount support at the $400 level so we’ll have to see what happens there if $420 fails.

Longer-term traders might do well to place stops beneath $400 but more conservative traders might prefer just beneath $420.

Continue doing your own analysis for additional insights and ideas.

Corey Rosenbloom, CMT
Afraid to Trade.com

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6 Comments

6 Responses to “The Pullback Flag Retracement in Google GOOG”

  1. Shashi Says:

    Funny thinf is people give both recommendation in same article…. how ridiculous!

  2. Corey Rosenbloom, CMT Says:

    Be prepared to play it either way – don't get locked into a dogmatic way of thinking a market *must* do something. Be flexible in trading.

  3. JeffreyLin Says:

    what u make of $GOOG “pullback” sell volume if it indeed is a pullback? but volume too been givin headfake signals so dont bother asnwering

  4. Corey Rosenbloom, CMT Says:

    Volume has been difficult to read lately – normally we get a standard decrease as we go into the summer months to keep that in mind.

    Volume has been flat to decreasing over the last few months so there isn't much to interpret unfortunately.

    A safe pullback would show a decrease in volume on the pullback and an increase as price resumes the original trend.

  5. Leonardo Says:

    The momentum high in June remains below that of early February, creating a divergence. Is this structure still relevant?

  6. Leonardo Says:

    The momentum high in June remains below that of early February, creating a divergence. Is this structure still relevant?