Much Ado About Nothing: The Warning That Wasn’t

Google’s stock was down almost 4% today (Feb 19) on below average volume.

The fall is being attributed to a post by the infamous Henry Blodget on his blog claiming that Google’ s 10K filing

s are talking down future revenue. Blodget’s post was picked up by a number of other blogs and soon made it to the headlines page of Yahoo!

Finance and other news sources.

Analysts tend to comb through Google’s 10K since Google does not officially provides estimates or guidance.

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a long drawn out proxy battle is going up everyday.

This gives Google a window to strenghten its market leading position.

Retracement Analysis: Google’s stock hit a recent low of 488.52 on Feb 5.

It bounced back to reach a high of 541.04 on Feb 14.

The stock has been retracing since then, closing remarkably close to the Fibonacci retracement levels. On Feb 15 the stock closed at 529.64, very close to the 23.60% retracement point of 528.65. On the next trading day, Feb 19, it closed at 508.95, just above the 61.8% retracement point of 508.58. The next retracement level (76.40%) is at 500.92 which should provide some support; the near term upside retracement levels are at $514.78 (50%) & $520.98 (61.80%) which might provide some resistance.

Trading Strategy: There is a lot of cash waiting on the sidelines to be deployed and HP’s stellar results are going to provide a short term lift to the technology sector. I feel it is time to start taking long positions in Google.

Out of the money calls for the March 2008 expiry look promising; the 540, 550 and 560 strikes are worth considering.

The expiry date for March options is March 20, which is a full five weeks from last week’s expiration. This has resulted in longer time to expiry for the March options, and consequently lower time decay (theta) in the short term.

These options will not lose a lot of time-value in the next one week but will capture most of the upside.

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