Searching For A Bottom In Search Companies
While tech stocks were the primary victims of the last bubble that popped, they have been more resilient on this latest move lower in the current bear market. The Nasdaq has shed close to 20% since the last day of trading in 2008 through March 9, and while that is not a pretty number, it has been much better than the other major market indexes. The Russell 2000 (NYSE:IWM) for instance, has fallen a whopping 31% in the same time, followed by 25% declines in the Dow Jones Industrial Average and the S&P 500.
While many high-profile tech stocks flat out disappeared after the last bubble burst, many proved to have sustainable business models with "real" earnings and survived. Yahoo! (Nasdaq:YHOO) for instance, survived the initial search engine war, outlasting or buying other competitors.
While Yahoo! certainly suffered through a severe decline after the bubble popped, it survived and had a respectable rally in the following bull market. Even though it didn't approach its all-time high of $125.03, it rallied from a low of $4.01 to a high of $43.66. If we look at a more recent chart of YHOO, we can see that it has been trading in a consolidation pattern and is offering mixed signals. On the one hand, notice that it is still well off those lows ($4.01) set after the bubble popped, which can't be said for a large number of stocks in the current environment. It has been setting higher pivot lows, showing that buyers are stepping in at progressively higher prices, and is also showing a couple of possible reverse head-and-shoulder patterns in the chart below. However, sellers are consistently stepping in at gap resistance in the $14 area and any talk of an important low being formed is premature until it can clear this area.
After surviving the tech bubble crash, YHOO found itself with new competitors battling for the online search business. Google (Nasdaq:GOOG) is currently the king of the hill in this area, and had a wildly popular IPO in 2004. It started trading well above the IPO price near $100 per share, and rose to more than $700 at the last peak. GOOG has certainly suffered through profit-taking during the current bear market, and is also offering mixed signals. It clearly fell out of a bearish-looking trading channel after failing to eclipse resistance in the high $300 area. While this is weak, it is also already oversold and could be finding support near this area based on longer term charts. If it can rebound back into the channel, it could set up a potential bear trap.
Baidu (Nasdaq:BIDU) is also a fairly recent competitor to GOOG and YHOO. Baidu is the leading Chinese search engine and also experienced a large move higher after a very volatile IPO in 2005. After opening in the $60 area it quickly surged to more than $150 before pulling back near the $40 area a few months later. It then went on to rally to a high of more than $400 in 2007. More recently, it also has been offering mixed signals. It cleared a recent consolidation that looks like a bottoming pattern, but is still well under some possibly significant resistance. It is also showing overbought slow stochastics levels and a declining 200-day moving average.
While not a pure play on search engines, the single biggest threat to GOOG and YHOO thus far has been, and continues to be, Microsoft (Nasdaq:MSFT) and its MSN portal. MSFT is a powerhouse as a company with the ability to seriously challenge in almost any tech venue. As a stock though, MSFT has recently left much to be desired. MSFT is currently near 11-year lows, while the others mentioned above have yet to break under their lows from just a few years ago. While it rebounded with the rest of the markets today, it is still clearly in a downtrend with stiff resistance overhead.
While tech overall has shown signs of strength, the picture for these search engine companies can best be described as mixed. With the overall markets possibly looking at a chance for a rally, it will be interesting to see how these stocks participate. Do you think they will lead along with other tech stocks, or are they better left alone? Let us know what you think by joining the Investopedia Community.
At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.
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While many high-profile tech stocks flat out disappeared after the last bubble burst, many proved to have sustainable business models with "real" earnings and survived. Yahoo! (Nasdaq:YHOO) for instance, survived the initial search engine war, outlasting or buying other competitors.
While Yahoo! certainly suffered through a severe decline after the bubble popped, it survived and had a respectable rally in the following bull market. Even though it didn't approach its all-time high of $125.03, it rallied from a low of $4.01 to a high of $43.66. If we look at a more recent chart of YHOO, we can see that it has been trading in a consolidation pattern and is offering mixed signals. On the one hand, notice that it is still well off those lows ($4.01) set after the bubble popped, which can't be said for a large number of stocks in the current environment. It has been setting higher pivot lows, showing that buyers are stepping in at progressively higher prices, and is also showing a couple of possible reverse head-and-shoulder patterns in the chart below. However, sellers are consistently stepping in at gap resistance in the $14 area and any talk of an important low being formed is premature until it can clear this area.
 |
| Source: StockCharts.com |
After surviving the tech bubble crash, YHOO found itself with new competitors battling for the online search business. Google (Nasdaq:GOOG) is currently the king of the hill in this area, and had a wildly popular IPO in 2004. It started trading well above the IPO price near $100 per share, and rose to more than $700 at the last peak. GOOG has certainly suffered through profit-taking during the current bear market, and is also offering mixed signals. It clearly fell out of a bearish-looking trading channel after failing to eclipse resistance in the high $300 area. While this is weak, it is also already oversold and could be finding support near this area based on longer term charts. If it can rebound back into the channel, it could set up a potential bear trap.
 |
| Source: StockCharts.com |
Baidu (Nasdaq:BIDU) is also a fairly recent competitor to GOOG and YHOO. Baidu is the leading Chinese search engine and also experienced a large move higher after a very volatile IPO in 2005. After opening in the $60 area it quickly surged to more than $150 before pulling back near the $40 area a few months later. It then went on to rally to a high of more than $400 in 2007. More recently, it also has been offering mixed signals. It cleared a recent consolidation that looks like a bottoming pattern, but is still well under some possibly significant resistance. It is also showing overbought slow stochastics levels and a declining 200-day moving average.
 |
| Source: StockCharts.com |
While not a pure play on search engines, the single biggest threat to GOOG and YHOO thus far has been, and continues to be, Microsoft (Nasdaq:MSFT) and its MSN portal. MSFT is a powerhouse as a company with the ability to seriously challenge in almost any tech venue. As a stock though, MSFT has recently left much to be desired. MSFT is currently near 11-year lows, while the others mentioned above have yet to break under their lows from just a few years ago. While it rebounded with the rest of the markets today, it is still clearly in a downtrend with stiff resistance overhead.
 |
| Source: StockCharts.com |
While tech overall has shown signs of strength, the picture for these search engine companies can best be described as mixed. With the overall markets possibly looking at a chance for a rally, it will be interesting to see how these stocks participate. Do you think they will lead along with other tech stocks, or are they better left alone? Let us know what you think by joining the Investopedia Community.
At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.
by
Joey Fundora
Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis.
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