Google Inc Bouncing With The Market, But Is It Just A Precursor To More Downside?

Google Inc GOOGL is not making it easy for both the bulls and the bears to make money in its stock right now. Shares have seemingly been setting up for one thing, yet often do another -- it's been like this for several months.

So, will Google break and close above the key resistance range between $605 and $609? Or, will Thursday's low of $574.05 fail to hold as support and allow the stock to fall to bears' target at $513.40?

What The Bulls See...

• A PEG ratio of less than 1, with a price-to-earnings ratio of around 17

• Revenue and earnings growth estimates for 2015 eclipsing 18 percent
• A flawless balance sheet, including a current ratio of 4.56, a debt to equity ratio of only 8.7 percent and cash of $58 billion versus only $8 billion in total debt
• Net profit margins in excess of 20 percent
• Huge positive levered free cash flow of $5.48 billion

What The Bears See...

• Expensive valuation metrics, including a market capitalization of $397 billion that eclipses an enterprise value of $343 billion
• A price-to-sales ratio of 6.03 (over 5 is considered to be high)
• A price-to-book ratio of 4.10 (over 3 is considered by many to be high)

Technical Update

Technicians, in particular, note that Google shares may have just completed the first sub-wave of the next decent wave lower and is now bouncing.

Related Link: Is IBM 'Stuck In The Middle With You'?

So, in wave-speak, Google is in wave “(ii) higher of iii lower” with an upside target range of $591 to $605.40. Once this wave “(ii)” bounce runs its course, technicians are anticipating a move down toward the $513 to $520 range.

That outlook closely mirrors their thoughts on the broader U.S. equity market.

Overall…

The technical outlook is for a possible drop to the $513 to $520 range if $574.05 fails to hold as support, so prospective buyers might be wise to wait and observe.

Adventurous shorts, though, may wade into the fray if Google trades up to $591, $600 or $605 and shows signs of reversing lower.

Disclosure: At the time of this writing, the author had no position in the equities mentioned in this report.