Happy Birthday GOOG

The worlds largest search engine, Google (NASDAQ:GOOG) $278 (don’t argue this point with Yahoo), went public a year ago blasting out of the starting gate at speeds reminiscent of the late 1990’s tech stock IPO boom. Initial skepticism--mostly worries of a revisit of the tech burst--gave way when shares of GOOG moved higher each day following the offering--despite TV analysts’ predicting the contrary.

As commentators preached eminent doom for the issue (I admittedly was one of them), shares continued to move higher in an almost defiant manner. Momentum picked up-- the stock doubled, then tripled—and commentators recanted their warnings and hopped aboard the search engine train. After six months of trading, it seemed like GOOG was the only stock you needed in your portfolio… this puppy could never come down, it’s the king of the internet hill.

Today, on Google’s first birthday as a public company, Google fever remains hot—but there are signs that this fever may in fact be a disease. The company announced this morning plans of a $4.2 billion stock sale (14.8 million shares) citing immense demand for the stock. The announcement constitutes roughly an 8% dilution of shares which should have resulted in a market correction by the stock of around 8%. However, as of this writing, shares of GOOG are trading only 2% lower.

Has Google fever clouded the minds of investors? Did a slight dip at the open fool retailers into buying “cheap” shares thereby preventing a true market correction? Are institutions baiting retailers into buying before a massive dump? Am I the only idiot who feels Google is way too expensive at a P/E of 82?

While it’s true that Google’s market share in the search engine arena has been steadily growing and profits are moving forward accordingly, there seems to be an air of unsteadiness with this issue. In recent sessions (prior to the dilution announcement) shares of GOOG have fallen through all short term moving averages (9, 20) and opened this morning below the key 50 day MA and never tested it as resistance.

If you look at the two month chart, you’ll notice a peak on July 21 followed by a defined downward slope of lower lows and lower highs. We’re now seeing the 100 day MA as a short term bottom side target (currently at $260) with a longer term target at $220 (Current 200 day MA). You can expect to see more short interest jump aboard here (especially since it looks like retailers are being baited) which could help push this stock to the 100 day MA as soon as the first week of September.

If you own shares of GOOG, you may want to dip out and see where the market takes it. The stock is not looking strong… period. But with the GOOG fever still spreading throughout the street, this puppy may reclaim some ground. Tomorrow will be a key day for GOOG. If she doesn’t at least test that 50 day MA… get out!

A bright point in this whole deal has emerged. Rumors that Google will use the $4 billion to acquire a “complimentary” business are floating around the street. We’ll be investigating these rumors to see which companies are probable targets, and which are pure fluff, but be wary that GOOG 50 day MA… it’s key.

Luke Hodgens is the editor of
Powerhouse Profits a conservative investment newsletter. Click here to read more of his cogent analysis."