Google (GOOG) stock is completing a full “mirror image foldback” (a fancy term for a symmetrical decline and recovery) into a possible resistance level at $600. Let’s take a look at Google’s weekly chart to see these developments and pay close attention to what happens as price retests the $600 level soon.
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Starting with the April 2008 swing high of $600, Google made an almost relentless fall down to the November lows of $250 per share (also forming a positive momentum divergence in the process).
Price reversed upward off these lows and then continued back to the upside in a stellar recovery (increasing over 100% in the process) in an almost identical straight-up rise as the prior straight-down decline.
If you look closely, it resembles the letter “V,” and that reflects the symmetry in price moves.
The implication is that the $600 level could hold as overhead resistance on the first retest, so we need to keep watching that for any signs of reversal candles or downside action, such that the mirror Image would be exactly symmetrical, leading to a top.
Otherwise, a breakout above $600 would argue that price could eventually retest the 2007 highs of $750 per share, which would be ultra-bullish for the broader markets. That’s why we need to watch the $600 level—it is important for so many reasons.
I can’t end the post without mentioning, at least in passing, the negative volume divergence which has formed all through the price rise in 2009. It serves as a classic non-confirmation, but price is king, and everything else is secondary.
Interestingly enough, momentum (3/10 oscillator) is confirming the price move with subsequent new oscillator highs (though a slight immediate, or internal, negative divergence has formed through November).
So, $600 is a key price barrier for bulls to overcome for continuation, or bears to push back price in a possible retracement at best, or reversal down, at worst.
By Corey Rosenbloom of AfraidToTrade.com
