Could the shakedown of this stock have been more obvious? DaBoyz are apparently doing a vaudevillian turn on the old saying, “Buy the rumor, sell the news,” since they have sold the bejeezus out of GOOG in the wake of a very significant new product introduction, the Nexus One cell phone. There’s a Hidden Pivot support at 582.15 that we should try to buy, but I’ll leave the logistics to you, since even February calls that are $20 out-of-the-money still sell for around $1600 apiece — way too rich for my taste. A stop-loss at 581.90 should be applied in any case.
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GOOG
Google has plunged nearly $30 from within 28 cents of our most recent rally target, decisively exceeding a 606.77 midpoint support with a ‘D’ sibling at 599.09. That’s where the stock is now headed, having crashed the midpoint, so you should be ready to bottom-fish there with a stop-loss as tight as you can handle. If the order fills and survives, please let me know in the chat room so that I can establish a tracking position for your further guidance.
The spike on yesterday’s opening brought GOOG within 28 cents of the 629.79 target flagged here last week. We held no position officially, but longs could have taken profits on half of their positions at the high, even if the intention was to replace the stock on the expected pullback. It has amounted to $8 so far, with a low at 621.54 – enough to lower the long-term cost basis of any shares still held.
Expect Google to climb to at least 629.79, but don’t get bent out of shape if you can’t find a way to board the rally in a manner that does not expose you to unacceptable risk. Camouflage will be most difficult to find as the stock continues to bound into outer space in spectacularly uncorrected fashion. We might have expected no less, since Google continues to make money the old-fashioned way, and to keep its edge through innovation and shrewd acquisitions.
A while back, I identified a Hidden Pivot at 607.28 as a minimum rally target, suggestion that you short this chazzerai when it hit our number. That day has nearly arrived, and the bet is still on. Short by buying two January 570 puts (GOPMN), day order. You can use a 1.90 limit order today if you want to park the order with a broker. However, this estimate is subjective and may go unfilled if put-option volatility rises as GOOG rallies toward the target. I’ve included a snapshot of an options calculator with a 21.1 implied volatility that closely approximates the option’s actual volatility with the stock trade about $6 shy of our target. The best way to get a fair price on the option, however, is to eschew calculations and simply position your bid so that it is in line with the spread as GOOG approaches the target. _______ UPDATE (1:00 p.m.EST): I’ve issued a “sell” order in the chat room, since GOOG trashed the target after slightly exceeding it on an opening gap. A chat-roomer reported paying 2.35 for the puts — reflecting a volatility explosion as GOOG climbed, and so there would be a $50 loss on the trade if exited on a 2.10 bid. It was possible to avoid the loss, however, and perhaps to come away with a small profit, if you used the initial pullback to 605.00 after the target was hit to take a partial gain.
GOOG has been struggling for altitude lately, unable to muster the potential last-gasp rally it would take to achieve a Hidden Pivot target at 607.28. The butterfly spread advised from lower levels is nicely profitable now, but it may have entailed too much work to engage the interest of subscribers. Here’s an easy one, though: If the stock hits 607.00, get short by buying a single January 570 put. It should be selling for less than $5, but it will be easier to be scientific about it by monitoring the option bid/asked spread when the stock gets within a buck or so of the target.
I didn’t hear from any subscribers who butterflied the 610 strike as I’d recommended, but it sill looks like the stock could top out near that price. Specifically, there is a Hidden Pivot target at 607.28 where we could attempt to get short with relatively little risk. I may be able to advise a price for any put options we might buy if and when the target is reached, but for now I’ll make it catch-as-catch-can, stop 607.41.
I think Google will hit 607.28 by December expiration. A relatively low-risk way to play the move would be to buy the 600-610-620 butterfly for a debit of between 0.50 and 1.00. You would start by shorting two December 610 calls on the offer, then buying a 600 call and a 620 for about 0.50 to 1.00 more than you received in premium for the two Dec 610s. The position could widen to as much as $10 (i.e., $1000 per butterfly) if the stock is trading for 610 at expiration. We’ll work on this one for a while, but you should try to get a feel for how the three option series trade against each other as the stock moves up and down. If you’re able to fill the order, please let me know in the chat room so that I can establish a tracking position for your further guidance.
We already know that Google at its very feistiest is not capable of taking Goldman’s place as a market leader. However, when the web-search purveyor is moving higher, it does lend some buoyancy to the broad averages, and when this effect is sustained for a few days, it can cause short-squeeze forces to build. With that in mind, I’ll note that GOOG’s so far impotent rally would become meaningful to the short-term outlook if the stock can muster the modest push to 539.60 needed to create a bullish impulse leg on the intraday charts.
Those of you who were nimble and daring enough to have gotten off a short just above my 553.87 target last Friday should set a hair-trigger stop-loss, since GOOG looks like it’s a-comin’ to git ya. The stock could hit 568.18 on the next maniacal leap. The sibling midpoint of that Hidden Pivot is 554.44, just beneath the 554.75 high. My hunch is that if the stock can better the pivot, the peak itself won’t put up much of a fight. ______ UPDATE: GOOG exploded for a quick $8 points, topping at 559.35 before detumescing on the stock market’s final-hour selloff. If you were short coming in and dodged the bullet, treat yourself to a good cigar.
