How far will Google, Apple fall?

Upcoming earnings reports from Google and Apple could help the struggling shares reverse course. A look at the charts for both stocks reveals the key levels to watch.

By MoneyShow.com Apr 13, 2011 12:01PM
By Tom Aspray, MoneyShow.com

The stage was set for Tuesday’s stock market plunge by Alcoa’s (AA) earnings, which were released after the close on Monday. Even though the results were just a bit weaker than most estimates, and despite the company’s positive outlook for the year, AA was down 6.8% on Tuesday.

For the tech sector, many are waiting for earnings from Google, Inc. (GOOG), which will be released after the close on Thursday. Apple, Inc. (AAPL), another technology bellwether, will release its earnings after the close on April 20.

Last month, I analyzed the weekly charts of both stocks (see “Google, Apple: Buying Zone Ahead?”), and the daily outlook for GOOG has deteriorated further in the past two weeks. The earnings for both companies could be the catalysts for identifying short-term turning points.

Google Chart Analysis: Google, Inc. (GOOG) made marginal new highs on January 19 at $642.96 but closed Tuesday at $570.61 and is down just over 11% from the highs. GOOG has continued to be weaker than the S&P 500, and worse-than-expected earnings could be the event that pushes the stock below key support.
  • The daily chart shows a potential head-and-shoulders (H&S) top formation with key support at the neckline (line a) currently at $551. There is additional support and the weekly uptrend now in the $518 area
  • More important chart support is in the $500-$508 area and a break of the neckline would project a drop to the $460 area
  • The relative performance, or RS analysis, peaked in October 2010 and formed much lower highs in early 2011. More importantly, the RS broke below support on February 22 (line b) when GOOG closed at $610.21
  • This established a pattern of lower highs and lower lows in the RS, line c. This increases the probability that GOOG will also break key support
  • The volume pattern does support the H&S top formation analysis, as volume was highest in October and has declined since. The daily on-balance volume (OBV) has broken below support (line d) going back to late November and also shows lower highs and lower lows
  • As noted previously, the weekly OBV (not shown) did not make new highs early this year and the negative divergence has weakened the intermediate-term outlook
  • There is initial resistance for GOOG at $585 and a close above $598 would clearly improve the technical outlook. More important resistance now stands at $610-$620

Apple Chart Analysis: Apple Inc. (AAPL) has been in a steady decline for the past two weeks, and with Tuesday’s close at $332.40, the stock is now 8.9% below the February 16 high of $364.90.
  • AAPL is now reaching next chart support (line a) in the $326 area. If this level is broken, the 38.2% retracement support, as calculated from the August 2010 lows, is at $315.80
  • The rising 200-day moving average (MA) is at $306 with the more important 50% support at $300. The weekly uptrend (not shown) is at $293
  • The daily OBV has turned up from support at line b and needs to move back above its weighted moving average (WMA) to turn positive. The weekly OBV (not shown) did confirm the recent highs
  • Very short-term resistance is at $341.10 and the 20-day exponential moving average (EMA), and a close above this level would be a short-term positive
  • There is further resistance at $351.60 and then at $354.50. If these levels are overcome on a closing basis, it should signal that the correction is over
  • If this year’s trading range is resolved to the upside, the first projection targets are in the $377 area
What It Means: As we enter earnings season, it is generally impossible to gauge the market’s reaction to earnings data. Sometimes worse-than-expected numbers are met with buying, while just slightly weaker numbers are met with heavy selling.

Regardless, it is important to examine the technical outlook for a stock or sector before pivotal earnings are released. This will allow you to be better prepared during earnings season.

Though the chart for GOOG looks weak and does suggest further selling, if the stock could close strong on lackluster earnings, it would start to change both the sentiment and technical picture.

How to Profit: The RS analysis for GOOG should have alerted investors to the deteriorating technical outlook in February, so they could have hedged long positions or used tighter stops.

On a daily close below the neckline, the risk on long positions in GOOG would be much higher.

The longer-term technical picture for AAPL is much better, and the stock is already approaching first good support. A strong close in AAPL on volume of over 18 million shares could signal a short-term low.

In terms of risk, until the daily momentum turns positive, I would only look to buy AAPL at $303-$306.90 with a stop at $294.70 (risk of approx. 4%).

Related Reading:

Tags: internet
1Comment
Apr 13, 2011 2:05PM
avatar
good luck getting apple at $300. bounce in at 325 and out at 355 and make some money short term.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

113
113 rated 1
279
279 rated 2
416
416 rated 3
647
647 rated 4
548
548 rated 5
513
513 rated 6
669
669 rated 7
516
516 rated 8
317
317 rated 9
113
113 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
UPLULTRA PETROLEUM Corp10
TAT&T Inc9
COPCONOCOPHILLIPS9
DVNDEVON ENERGY CORPORATION9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.