Search engines occupy just a small corner of the vast tech universe, but the big three players attract a great deal of interest from traders and investors. Clearly, the bear market has taken a toll on these former highfliers, but nothing goes down forever -- sooner or later, these issues may offer
I'll start my review of the sector's biggest names in chronological order, rather than order of importance to Net surfers and the broad market. Obviously,
would win that honor hands down because of its total domination and mainstream projects that might add considerably to earnings in coming years.
Which brings us to
, the pioneer of all things Net. The company fell on hard times in 2006 after posting a five-year high in the $40s. The subsequent decline dropped price to a five-year low in January, when Microsoft shocked the market with its takeover attempt. The news triggered a quick spike that topped out within a few days.
The stock then eased into a three-month holding pattern while the financial world waited for the acquisition drama to play out. The uptrend unraveled after
abandoned its efforts, and Yahoo!'s price sold off all the way back to the January low earlier this month. It broke down for two weeks but surged above that level in Thursday's big turnaround.
There's a hint of good news in the most recent price action. First, the stock issued a 2B buy signal when it rallied above the broken January low. Second, the volume pattern points to accumulation, with buying spikes on the upticks. Taken together, I'm looking for Yahoo! to hang tough in the upper teens and gather strength for a run into the $30s.
came public in 2004 and had risen more than sevenfold when it topped out at $747 in November. The initial decline found support at $412, with the stock bouncing strongly in March and retracing 50% of the four-month downtrend. That recovery failed in May, giving way to a selloff that tested the 2008 low last week.
The stock bounced at that support level, but not enough to signal a major reversal -- at least not yet. In fact, last week's price action just matched the range of the prior weekly bar, pointing to confusion as opposed to the start of a new uptrend. However, recovery volume was strong, raising the odds for a low that could hold for weeks to months.
However, the weekly chart points to major challenges even if the stock turns higher right here. The 10-month decline has carved out an ominous-looking lower high that will trigger a double-top breakdown if price trades through the 2008 low at $406. Any uptick will face resistance at the trend line generated by the two highs.
This raises two possible scenarios. First, a rally that fails at the trend line will yield a bearish descending triangle that often precedes a breakdown from a major top. Second, a rally above that trend line will force short-sellers to cover and trigger a buying spike that lifts price quickly toward the $600 level.
adds the China factor on top of traditional Net and ad revenue issues facing the search engine stocks. As we know, growth in that part of the world has dropped off a cliff in recent months, in reaction to the end of the Olympics-driven building boom. Is that retrenchment showing up in this stock's recent price action?
The simple answer is no. In fact, Baidu's weekly pattern looks far more bullish than that of Yahoo! or Google. Although price is well off the high posted at $429 in November, it's still trading well above the March 2008 low. This resilience has yielded a rangebound pattern that has been contracting toward the midpoint at $315 in recent weeks.
Despite the bullish tone, its best to just stand aside until the stock shows that's it ready to move higher and break out of the long consolidation phase. The next positive signal will come when price rallies above the declining highs in place since May. That uptick would set the stage for a test of the 2007 high.
It's easy to sum up today's examination of the Net's big three search providers. It goes something like this: Avoid Google for now, trade Yahoo! up to resistance in the low $30s and wait patiently for a longer-term buying opportunity in Baidu. That might come as early as the fourth quarter, especially if the broad market finally stabilizes.
Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.
At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.
Farley is also the author of
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