Google and the Art of Following the Leaders
Stock market lore says that you can learn a lot about the stock market simply by watching the leaders. When the leading stocks begin to advance, a broad-based market move higher is often not far behind, goes this sentiment. And when the leaders begin to retreat, you can be sure that the rest of the stock market will follow, sooner or later and to greater or lesser degree.
If this is true, then what can traders and investors make of three-day sell-off in shares of Google (NASDAQ: GOOG)?
GOOG has been trading in bull market territory on a consistent basis since mid-October, and rallied to a new, 52-week high in the first trading days of 2012. So the current selling, a correction that has taken Google lower by 6% over the past three days and into oversold territory for the first time since the day after the Thanksgiving holiday in November, almost certainly includes some measure of profit-taking.
The pullback in Google has earned the stock a one-point upgrade to the upper end of our “neutral” category, and will take a short-term, positive edge of just over 1% into trading on Tuesday. Should sellers continue to unload shares – and the run in the stock since it climbed up over its 200-day moving average in October suggests that there are plenty profits to take – then lower prices should help the stock earn even more signifcant ratings upgrades and larger, short-term positive edges. This is when, historically speaking, traders have become interested in the stock and come off the sidelines looking to buy.
There are other stocks in the Internet space for traders and active investors looking to take advantage of both potential weakness and potential strength in the near term. These include Yahoo! (NASDAQ: YHOO), which has closed lower for four days in a row and is trading both just outside of oversold territory and just above its 200-day moving average. Another Internet stock that traders should keep an eye on is Baidu Inc. (NASDAQ: BIDU).
Shares of BIDU have been trading in bear market territory since mid-December and could become attractive targets for traders looking to sell strength if shares of the stock return to overbought levels.
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David Penn is Editor in Chief of TradingMarkets.com.