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Tickers in this Article: GOOG, BIDU, YHOO, AOL
Internet stocks will be in the spotlight later this week when Google (Nasdaq:GOOG) reports on Thursday after hours. While the reaction could certainly be negative, these stocks have been surging recently and could catch a second wind if GOOG reports a favorable report or more importantly, optimistic guidance. Google Inc. has been lagging the markets for several months after falling from its rally to new recovery highs in late 2009. The main cause of the decline has widely been attributed to the company's decision to back out of China following the highly publicized hacks from within that country. GOOG fell on high volume, ultimately testing a low set in November. It surged in early March before ultimately giving back most of those gains. GOOG had been attempting to stabilize near $560 until a surge this week carried it to its March high near $590. It's doubtful GOOG will make much headway from this level until it reports on Thursday, but a break above the March highs would likely lead to a test of the January highs. (For more, see The Anatomy Of Trading Breakouts.)

Source: StockCharts.com


The main beneficiary of GOOG pulling out of China is the country's own homegrown internet search company, Baidu (Nasdaq:BIDU). BIDU cleared a base on the heels of Google's withdrawal and has been in a persistent rally since early February. While BIDU is quite extended, it has been an amazing picture of strength, having tacked on almost 200 points in two months. One level to watch if BIDU suffers through some profit-taking will be near $560, which coincides with the approximate projected area of the 50-day moving average and a small unfilled gap. This level may bring in some buyers as a prior level of importance.

Source: StockCharts.com


Yahoo! (Nasdaq: YHOO) could probably be described as a laggard at this point when compared to Google in the search space, and its stock price and performance reflects this. YHOO has been in decline since 2006, before the bear market even began, and has lagged GOOG since its IPO. However, YHOO has been showing some life recently, and is in the process of attempting to clear a several month long base. YHOO cleared a trendline earlier this month that marked the past three rally attempts and has rallied in a straight line since then. It cleared an important high set last October, and could be on the verge of beginning a new trend higher. Surely, YHOO will react to the GOOG report on Thursday and ultimately its own earnings on April 19.

Source: StockCharts.com


Another internet stock that has been on a tear lately is AOL (NYSE:AOL). Like the stocks mentioned above, AOL is moving ahead of its report (AOL reports April 28). AOL has a very interesting chart, although there is not much trading data to look at. The chart is only a few months old. AOL has been around for years but was bought out and then recently spun off again. In looking at the most recent iteration of the company, AOL recently broke out to all-time highs from its recent IPO after basing for several months. With earnings from several of these companies on tap the next week or two, AOL will almost certainly have some periods of volatility. One area to watch for support on possible weakness would be the breakout level in the high $26 area.

Source: StockCharts.com


The Bottom Line
With Google's earnings on tap for this week, it's quite possible that the internet group will have a powerful catalyst to move it. The difficulty for traders is that near term, most of these stocks are overbought and it would be a risky proposition to buy heading into earnings reports. However, on the intermediate term, the price action has been constructive and these stocks appear to be on the verge of a longer term uptrend. Surely the next few weeks will provide a clearer picture and this group may provide an exciting trading opportunity in the near future.

At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.

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