Editor's note: News that Google (GOOG) was considering pulling out of China after a network hack sent the stock reeling. RealMoney's expert commentators looked at the story from all angles and offered their perspectives.
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Jim Cramer started the conversation early:
5:50 a.m. EST Lotta bogus numbers out there about how China is important. JPMorgan is out with a $600 million in revenue number. I think that's way too high. It's China, so it is per se important, especially for the Droid, and when you have a high-multiple anything that's not additive to growth, it will hurt. I am just trying to keep things in perspective and not give up on Google (GOOG) on this one. Baidu (BIDU) , of course, is soaring. Position: None.
Timothy Collins looked at the implications for Chinese competitor Baidu and told you what to watch for in GOOG:
Holy BIDU, Batman!
8:54 a.m. EST Black swan for Baidu (BIDU) here? More like my boxer dog giving birth to a monkey. The big question on everyone's mind is what happens next for BIDU and Google (GOOG) . As far as BIDU goes, if you are holding JanUARY calls (I wish I were, but I am not), then congratulations. Will it go higher or lower from premarket? I have no idea. I suspect the stock will test the $440 level, but with a substantial short interest and this being a momentum name, this one may be wild. If I were holding calls, I'd stick with the mantra "Pigs get fat. Hogs get slaughtered." I will look at the stock on the open, and I am considering a straddle play since I expect volatility, and I do not think pinning will be an issue due to this major move. Google looks to open below its 50-day simple and exponential moving average, but I don't care about that number. It hasn't really mattered in the past several months. However, look at the 30-day SMA and EMA. Chart it. Go ahead, I'll wait. You'll find that the break below $600 was the key, and it also acted as resistance on that last spike. I think for GOOG, we need to look at the weekly chart now, and I use a 14-week MA here. Whether you are looking SMA or EMA, it would put support somewhere between $575 and $579, right where we are now. If it holds, it is an attractive entry, based on the weekly, so adjust your time frame for recovery accordingly. I am still long GOOG volatility, with $580 being my home-run number. I will post any adjustments or trades, but I will be looking very closely at both names this morning. Long GOOG volatility.
Dan Fitzpatrick examined the stock in the premarket and offered two ways to play it:
How to Play the Google Selloff
9:21 a.m. EST Google announced last night that it might pull out of China because of an email hack job. So does the stock merit a big selloff? Perhaps not, though the open is going to be really ugly. Here's how you might want to trade it. If you're short, cover into the crowd of panicked sellers. If you're looking to buy, here is the setup. First, it looks like GOOG is going to open below $580, which is near the current reading of the 50-day moving average. This has been a key level for many months. Why? Well, the stock has just never spent much time south of that moving average. So let's use that level to assess the damage done to the bulls. If the bulls push the stock back above $580, then I'd take the gift and buy. But if GOOG stalls at that level, then we're likely to see more downside. Gun to my head, I think this is a buying opportunity, not the time to hit the eject button. Position: Long GOOG.
Don Dion provided analysis on some related ETFs:
Google's China Decision No Reason to Ditch FDN
10:11 a.m. EST Google (GOOG) has announced that it may discontinue operations in China in the wake of a cyber-attack on its email service last year and continued demands from the Chinese government to censor search results. The announcement of this possibility will cause a dip in the First Trust Dow Jones Internet Index (FDN) today, at least in early trading. Google says it is no longer willing to censor its search results on the version of its search engine offered in China, and the company says that if it cannot come to an agreement with the government about un-filtering search results, it will exit the country. Baidu (BIDU) , a Chinese company, is the most popular search engine used in the country, with 60% of the search market. Google, though in second place, still commands a 30% share of the search market. Baidu's shares shot up at the open by about 14% on the news of Google's likely exit from competition. Google meanwhile was down about 2.5% in pre-market activity. This will affect FDN, the fund that I have recommended in the past as a strong Internet ETF. FDN's top holding is Google, and it allocates 9.6% of its holdings to the company, so it will likely see a small dip today. I have recommended FDN over another Internet fund, PowerShares Nasdaq Internet Portfolio (PNQI) on the basis of BIDU's underperformance and the fact that PNQI allocates 7% to the company, whereas FDN allocates none of its holdings to BIDU. This allocation difference means that PNQI will outperform FDN today, but overall I do not believe that GOOG, and by extension FDN, will be hurt significantly by the company's decision. Google does not release information on the revenue it gets from its China operations, but one can imagine that the company has faced limitations on its ability to profit from advertising, as the government has constricted its potential with censorship. It may also be good for Google in the long term, as many in China and elsewhere will come to admire the company for standing up against Chinese government censorship. Furthermore, PNQI trades with daily volume of about 10,000 shares, which is low enough to cause concerns about the fund's liquidity. For these reasons, I do not recommend switching from FDN to PNQI. Instead, I see today's expected run-up by PNQI and the dip in FDN as a selling opportunity for those holding PNQI and a buying opportunity for investors looking to get into FDN. At the time of publication, Dion owned FDN.
Jim Cramer revisited the story and saw no real danger to the stock:
Google's China Standoff Won't Hurt Too Much
11:40 a.m. EST Is Google's (GOOG) China imbroglio much ado about nothing? Well, the first rule of trading is that when you have a premium multiple, the only news you want to hear is that business is getting better. You need an accelerating growth rate to keep a 30 multiple, and this news doesn't help. Plus there are mitigating factors. China is just not that big for Google, and the wild high estimates of a loss of $600 million in revenue can't be used to figure out what the real impact will be. And you can't compute the impact by measuring the 42-point gain in Baidu (BIDU) , in part because there was a huge short in Baidu, as the word in the hedge fund community was that BIDU was about to miss the quarter and guide down. A transition issue, I kept hearing. So, I am not sure of the EPS impact. But here is something I would be worried about if I owned Google -- and I have been recommending Google: What's the impact on the Android? The Chinese cell-phone market is the most vigorous on earth. The smartphone adoption is in its infancy. There is a lot of share to be taken. I think this Google move could cause the government to shut down Android. That would be a huge deal and a reason to sell Google down the road, as I have a good feel that GOOG earnings will be amazing. If anything, you don't buy Baidu up 44 -- you buy Apple (AAPL) down a couple. Or you buy China Unicom (CHU) , which is the best distributor of Apple's iPhone in china by virtue of it being the best technology. (I own them both for Action Alerts PLUS.) So, no freakout on Google, but a multiple crimper for certain. At the time of publication, Cramer was long AAPL and CHU.
Tim Collins circled back and provided specific levels he was playing:
Google's First Test
9:44 a.m. EST Google (GOOG) held $574 on its first test (low of $573.90). I think that number is crucial here. Position: Long GOOG volatilityGOOG
10:16 a.m. EST Google (GOOG): I opened up two separate plays on GOOG as I sold some Jan 570-560 bullish put spreads for 2.0 (short Jan 570 put, long Jan 560 put). Any close above 570 on Friday, and I will keep the net credit. My risk of loss is 8.0 if GOOG falls to or through $560. I also bought some unbalanced put butterflies, long Jan 580 put, short 3x Jan 570 put, long 2x Jan 560 put for around .30. My upside is 9.70 on a close at $570. My downside is 10.30 on a close at or below $560. Also, note that I still have my previous GOOG play. Position: Net long GOOGGOOG
10:56 a.m. EST Bought back two-thirds of my Jan 570-560 bullish put spreads at 1.00 (and a few at 1.05). I had sold these at 2.00, posted earlier today. Position: Delta neutral GOOG currently
Howard Simons likes what he's seeing here in the U.S.:
Three Cheers For Pelosi
1:24 p.m. EST House Speaker Nancy Pelosi just praised Google (GOOG) : "Google is to be commended for taking action in response to cyber attacks originating from China targeting Chinese human rights advocates." She went on to say Google's actions "should serve as an example to businesses and governments." Wow. That needed to be said. I have had some discussions offline where people have said, "China does...," and my response has been, "China is a police state. I do not wish to emulate a police state." An attack on someone else's freedom and liberties is an attack on mine. Go Google, and (I'd never thought I'd say this) go Nancy Pelosi. Position: None.
This article was written by a staff member of RealMoney.com.