By Lipa Roitman Ph.D. 
January 11 2013

Google GOOG is a huge company, 242 billion market capitalization, ranking 4^th after Apple AAPL, Exxon Mobil XOM, and China Petro PTR. It dominates search engine market with a 67% market share. By wide margin it dominates the mobile ad market, and keeps expanding in many additional areas of the internet business. It overtook Apple AAPL by the number of apps available.

Numerous articles have been written about GOOG stock performance, too many to read and digest. All are discussing the GOOG stock fundamentals, comparing them to competitors, and come to widely different conclusions. Partly this is because the available data is sketchy and updated infrequently. The only info updated daily is the market prices. Hidden in these numbers is the information about future market moves that many technical analysts try to decipher. But could one have predicted and profited from the moves of GOOG stock?

We post here the results of the GOOG stock forecast by I KNOW FIRST market forecast algorithm for the last year (Fig.1).

The basics of this stock forecasting system are described here, here and here. In short, the system uses powerful computer algorithms to analyze years of market data for a number of stocks and derive laws by which future moves can be predicted to some level of certainty. Each point on this chart was taken from the actual daily forecast published the morning before the next market open. Each forecast contains six different time horizon forecasts, from three days ahead to one year ahead. The charts show the actual price in blue and the signal line in red. The positive or negative (up or down) signals of the forecast were added to the actual last known price at the time of forecast. Thus, when the signal line is above the actual line, it means "buy", if below, then "sell". The widely ranging signals were transformed with a help of ATAN operator to bring them into manageable scale to fit on this chart. The green and red arrows show what would be the best times to enter the market.

During that period the I KNOW FIRST system identified three possible trades:

1. A short on Jan. 3, 2012

GOOG stock climbed from the low of 495.52 on October 3, 2011 to end with a peak on Jan 5, 2012 at 759.01.

Towards the end of a climb the I KNOW FIRST system send a series of down signals in December 2011, which culminated with the strong down signal on January 3, just before GOOG peaked on Jan 5. The decline that followed was initially “technical”, due to “too fast too soon “ climb. But then it was exacerbated by the company reported quarterly results on January 19, missing Q4 estimates, sending shares lower from 639.57 to the bottom of 568.10 by January 25.

The optimal trade would be to enter a short on a strong January 3 2012 signal. The exit would be at the counter move up from the bottom or at about 600 in February when the down signal got weak and then disappeared.

2. A long on May through July, 2012 with exit by October 5

The second opportunity presented in May through July 2012, when the long term signals were consistently up while the stock was making a second bottom at about 559 on June 14. Fig. 2 below is a zoom-in chart which shows in detail the gradual transformation of the signals in May. While the short term forecast is down all through May, the down signals become weaker with time, and the long term forecast is up and getting stronger with time, signaling the upcoming trend change. Those who have accumulated during that period were rewarded at the end of June with a nice climb which culminated on October 5 at 735.54.

3. A Possible long/short trade in the first half of March. (Figs.2 and 3)

Fig. 2 is a zoom-in chart, covering the three month period starting March 1. On March 8 through 10 the system sent a series of strong but contradictory signals, a short term “up”, and a long term “down” which did not repeat afterward. They predicted correctly the GOOG climb to 655.76 on March 28, and subsequent decline to 559.05 on June 19. It would be a challenge to act upon these signals. It may be possible by using options spread

Fig. 2 shows the short term long trade, Fig. 3 the long term short trade. But we prefer the consistent signals for all time ranges. They are less risky.

Conclusion

One can see from the charts that the major GOOG market moves were predicted by the system. The preferred strategy is to stay out of the market until the trading opportunity arises, and then get out at the reasonable profit or on change of signal. Staying too long in the market is risky, as can be seen from the drop following October 5, peak. On October 18 Google released its fiscal third-quarter earnings report which was again disappointing. The expectations were just too high!. The message is: don’t fall in love with your stock!

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