Weekly chart of EBAY Jan 3, 2003 to July 30, 2004
Weekly chart of GOOG August 19, 2004 to February 17, 2006
Now, here's a chart of what happened to EBAY after July 30, 2004:
Weekly chart of EBAY all the way to February 4, 2005
If I'm right, then GOOG should follow the exact same path as EBAY from today onward. Obviously, there is no guarantee that GOOG will follow exact the same path as EBAY, but historical analysis says that stock patterns often repeat themselves.
If you look at the charts above, I've labeled the prices of the initial breakout and top of EBAY and GOOG. The stock pattern represented in the chart of EBAY is also known as a flag pattern. According to the definition of a basic flag pattern, the price target of the second breakout should be almost identical to that of the initial breakout. On the first chart of EBAY, the initial breakout started at $26.07 and the initial top formed at $47.06, which represented a $21.01 run. On the second chart of EBAY, the second run started at $36.41 and ended around $58.67, which represented a $22.26 run. Notice that boths runs were nearly identical.
Now look at the chart of GOOG. It looks like the initial breakout started at $294.56 and topped out around $470.50, which would represent a $174.95 run ($470.50-$294.56=$174.95). If we go back even further and take the initial breakout at $177.25, then the initial run would've been $470.50-$177.25 = $293.25. I'm not exactly sure if the second run has started yet, but the bottom should be around the $337-$340 area when it does start. So, if I'm right, then the next leg up for GOOG should take us all the way to around $511.95 ($340.00+$174.95) or better yet, $633.25 ($340.00+$293.25).
So, where will GOOG will take us in the next few weeks? Well, in my opinion, there will be one of two likely scenarios:
1) We go back and retest the low set at $337.83, then move higher from there. If this is the case, then the retest should happen within the next two weeks and the retest MUST BE on lower volume.
2) We move straight up from here. We gapped down big last week (closed at $362.61 on Friday, 2/10/2006, then opened at $346.64 on Monday 2/17/2006, due to the Barron's News) and then closed near the high of the week at $372.14, above the prior bar's low at $353.14. I know that this doesn't mean much to a lot of people, but to technical analysts like myself, this type of move represents a VERY BULLISH setup.
Only time will tell where GOOG is going, but my best guess is that we're going higher...a lot higher. And I'm going to stake some money on it. I'll probably buy some $400 options. At this time, the March $400 Calls cost $6.00. I don't think that we'll get to $500 by the third week of March (options expiration day), so those options are probably not a good bet, however, the June $400 Calls cost $24.00 right now. That's a pretty hefty premium considering that GOOG is only trading at $372, but that gives us 4 months to make the move that I'm expecting.
So, how exactly am I going to make $100,000 in 4 months? Well, assuming that we hit my initial conservative target of $511.95 by June 16, 2006, each contract of GOOG June $400 Calls that I buy at $24.00 will be worth a minimum of $111.95 ($511.95-$400 strike price). Each contract will cost me $2,400. When GOOG reaches $511.95, each contract will be worth a minimum of $11,195 netting me a minimum of $8,795 per contract that I buy. I say minimum because I have not included the premium of the option. The premium is dependant upon the time left before the option expires and that's unpredictable. In order to make $100,000, I would have to buy roughly 12 contracts. 12 contracts would cost me $28,800 at the current price.
Am I actually going to buy 12 contracts of GOOG? Stay tuned...all I know is that it's time to get even...I think it's time to bitch slap GOOG...