Facebook Messages, the new email system Mark Zuckerberg announced a couple of days ago, was considered as a threat to Google’s Gmail right from the beginning of the rumors and Google stock declined from $630 to almost $580 the past week. As the stock price approached the resistance level of 3-year high, the Facebook news was just the thing to lead investors into either closing their long positions after a strong 2-month uptrend that moved the stock price all the way up from $450, or short sell the stock for future profits. GOOG stock bounced back yesterday forming a nice reversal candlestick formation in the daily graph, but the weekly graph still indicates the stock is swinging back to the 21-week moving average.
GOOG stock’s all time high has been $750 mark in late 2007. Since then it has declined down to $300 when the price reversed and went all the way up to almost $650 in a series of green candlesticks in the monthly graph. The question today is whether the news coming from Facebook will be enough to once again push the Google’s stock price lower. The stock news combined with a MACD divergence in the weekly graph, the Double Top right on the resistance level and the exhaustion gap during October – notice the spike in Volume on that day – seem to have done the trick. I would trade short on the GOOG stock with an entry point right at the next peak in the daily graph, just below $630. Setting a stop loss at $640 makes sense, while a target profit point at around $525 sounds reasonable, close to the weekly moving average.
In case the GOOG stock breaks above the resistance level, I would reverse the position, as the breakout would be extremely important and strong, given all the mentioned technical facts. However I won’t be trading the Google’s stock as the price is quite high for my bankroll. Even if I traded 200 Google’s shares, the daily average true rate (ATR) of about 10 would mean serious fluctuations in my P&L screen, while proper bankroll management wouldn’t allow me to set a stop loss that high.
Here is the Mark Zuckerberg’s interview at the Web 2.0 Summit 2010 two days ago talking about the recent announcement about the Facebook Messages.