Google Buying Pressure
I am just about to head out the door for a week of much needed vacation. I posted yesterday that there would be no new posts for the next week or so. Ok, so one final post before vacation. I thought this post might be very timely because I consider Google the poster stock for this stock market cycle. It is one of the few technology stocks that has performed well. Partly because unlike many technology stocks, this is a company focused on the consumer and this cycle has been all about the consumer. Unlike past cycles, our last recession was driven by a significant slow down in business spending after a massive blow off in capex into 2000. While we had a mild recession in 2001, it was very short because for the first time in modern history the consumer did not quit spending. Hence the 2001 recession was a business driven recession. Since the consumer is responsible for approximately 70% of the American economy, they pulled America, China, Japan, India, Europe, etc through without alot of problems as they continued to spend on globally produced goods and services.
So, you may ask, well, how is Google focused on the consumer when their source of income is ad revenue paid by companies? Well, it's quite simple. Those companies are targeting consumers. Google's business model is not a business to business model but a business to consumer model. That is an example of why Apple, a predominantly consumer driven technology company rocked this cycle while the capex sensitive Microsoft, Dell, etc derive the majority of their profits from their large business clients. Some foolishly believe that since Dell and Microsoft languished in the markets that Apple was about to take over the world in the PC business. That is the furthest thing from the truth. I digress. The following chart is a weekly price chart of Google. The dates on the x-axis are a little smooshed to use a highly technical term. I had to squeeze the chart to fit it all on here. So, some of you may be aware of a concept of buying pressure and selling pressure used by the brilliant team over at Lowry's to determine the health of equity markets. On this chart, overlaid in red, is a similar representation of buying pressure for Google. When the red plot is above the black horizontal line, the buying pressure is strong and increased prices follow. When below, it is weak and prices are likely to languish or decline. You can see the powerful buying pressure Google enjoyed in 2004 and 2005 as prices propelled significantly higher. You can actually tell that buying pressure started to decline as Google's stock price was making an all time high. That means smart money was stepping aside as dumb money continued to bid the price up on lower and lower buying pressure. Then, in 2006, what happened? The buying pressure has dried up even though prices have pushed back towards new highs. Not only that, but it actually went negative at times. Thus, there is much less conviction on the part of big investors to actively participate in the recent rise of Google. So, who is buying Google right now? Likely, alot of retail investors or as they are typically called on Wall Street, dumb money. Enjoy the holidays!
So, you may ask, well, how is Google focused on the consumer when their source of income is ad revenue paid by companies? Well, it's quite simple. Those companies are targeting consumers. Google's business model is not a business to business model but a business to consumer model. That is an example of why Apple, a predominantly consumer driven technology company rocked this cycle while the capex sensitive Microsoft, Dell, etc derive the majority of their profits from their large business clients. Some foolishly believe that since Dell and Microsoft languished in the markets that Apple was about to take over the world in the PC business. That is the furthest thing from the truth. I digress. The following chart is a weekly price chart of Google. The dates on the x-axis are a little smooshed to use a highly technical term. I had to squeeze the chart to fit it all on here. So, some of you may be aware of a concept of buying pressure and selling pressure used by the brilliant team over at Lowry's to determine the health of equity markets. On this chart, overlaid in red, is a similar representation of buying pressure for Google. When the red plot is above the black horizontal line, the buying pressure is strong and increased prices follow. When below, it is weak and prices are likely to languish or decline. You can see the powerful buying pressure Google enjoyed in 2004 and 2005 as prices propelled significantly higher. You can actually tell that buying pressure started to decline as Google's stock price was making an all time high. That means smart money was stepping aside as dumb money continued to bid the price up on lower and lower buying pressure. Then, in 2006, what happened? The buying pressure has dried up even though prices have pushed back towards new highs. Not only that, but it actually went negative at times. Thus, there is much less conviction on the part of big investors to actively participate in the recent rise of Google. So, who is buying Google right now? Likely, alot of retail investors or as they are typically called on Wall Street, dumb money. Enjoy the holidays!
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