Google Again
I've probably highlighted Google more than any other individual stock. I view their success as a proxy for this cycle given we are in a very unhealthy consumer centric investment cycle. Google is the consumate consumer stock. Therefore, it is one of the stocks I absolutely do not like as an investment now that we are entering a period of uncertainty.
Below is a chart of Google since it went public. Notice how the chart maintained an orderly rise within a parallel channel until the blow off top in January of this year. At that point clarity of vision was achieved. Google was going to rule the world. Newspaper articles, magazine covers. The founders were geniuses. $2,000 price predictions by analysts. Maybe. More like a mania top. The stock dropped back into its orderly rise and found support at the bottom of the channel in an attempt to rise again only to fail. Now, that isn't necessarily bad news. Maybe the stock is just taking a breather. Eventually the stock settled just about the unfilled gap marked on the chart and floated along the top of that gap until it broke the parallel channel. I suspect there was a little unfilled business before the stock could drop. It was the down gap created when the stock fell from its January high. That gap has been filled but now there is a huge gap directly below the new high peak just set and the stock has failed to move higher since making a new high. I'm pretty confident we are going to fill that downward gap. Do we fill all of the gaps on the chart? Eventually, I would suspect so. The stock's action in 2006 has been very unhealthy.
Anyone other than me notice that Google used to consistently trade 60, 70 even close to 100 million shares a week? And, since that January high we are trading 18, 20, 28, 30 million shares a week? New highs on low volume are typically a very negative development in any stock. The market will eventually price significantly more risk into Google's future. Remember, the future of this company is very unclear. The future of the global economy is very unclear. Competition for new methods of internet advertising revenue are already showing up. Google has one source of revenue and, therefore, is a one hit wonder. The stock is trading at a valuation that is likely greater than the GDP of most small or under developed countries. What kind of surety do I get for this valuation? Dividends? Predictable business model like an insurance company? Nada.
Below is a chart of Google since it went public. Notice how the chart maintained an orderly rise within a parallel channel until the blow off top in January of this year. At that point clarity of vision was achieved. Google was going to rule the world. Newspaper articles, magazine covers. The founders were geniuses. $2,000 price predictions by analysts. Maybe. More like a mania top. The stock dropped back into its orderly rise and found support at the bottom of the channel in an attempt to rise again only to fail. Now, that isn't necessarily bad news. Maybe the stock is just taking a breather. Eventually the stock settled just about the unfilled gap marked on the chart and floated along the top of that gap until it broke the parallel channel. I suspect there was a little unfilled business before the stock could drop. It was the down gap created when the stock fell from its January high. That gap has been filled but now there is a huge gap directly below the new high peak just set and the stock has failed to move higher since making a new high. I'm pretty confident we are going to fill that downward gap. Do we fill all of the gaps on the chart? Eventually, I would suspect so. The stock's action in 2006 has been very unhealthy.
Anyone other than me notice that Google used to consistently trade 60, 70 even close to 100 million shares a week? And, since that January high we are trading 18, 20, 28, 30 million shares a week? New highs on low volume are typically a very negative development in any stock. The market will eventually price significantly more risk into Google's future. Remember, the future of this company is very unclear. The future of the global economy is very unclear. Competition for new methods of internet advertising revenue are already showing up. Google has one source of revenue and, therefore, is a one hit wonder. The stock is trading at a valuation that is likely greater than the GDP of most small or under developed countries. What kind of surety do I get for this valuation? Dividends? Predictable business model like an insurance company? Nada.
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