Mind Your Stops on Google

 | Mar 08, 2013 | 7:00 AM EST
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Google (GOOG) still has a very bullish chart, as it did in October 2012 before we eventually saw a corrective decline of $124.08. Last year, I wrote an update suggesting that it might be a good idea to trail stops up in that stock, since many moves terminate at extensions of prior swings, if only temporarily. After the update was posted, we did continue to rally for a while, but then the corrective decline finally unfolded, and it was nasty. I can't tell you that the same thing will happen this time around, but wouldn't you rather be safe than sorry?

Don't get me wrong ... I'm not saying that Google can't go higher. I'm just saying that you might want to take some profits in this one and also trail up stops as you go. If this stock is going to go higher, then you probably won't get knocked out with your trailing stop.

I make this suggestion since we have met a key upside target at the $812 handle, and we are getting close to the 1.618 extension of the major swing down into the Nov. 16, 2012, low at the $859.90 area. Also, take a look at the prior rally swings in this one. I have labeled these swings on the weekly chart below. Remember that many moves in a market can be similar. The prior weekly rally swings since the November 2008 lows were $382.21, $209.33, $154.48, $189.65, $197.23 and $217.86. The recent rally from the November 2012 lows has lasted $193.70 so far, which is similar to four other major rally swings on the weekly chart.

GOOG Weekly

I'm only looking at the past, to give us an idea of what could happen in the near future. Let's take a look at one other major extension that was seen in Apple (AAPL) last year.

Take a look at this daily chart of Apple. I remember when one of my subscribers was very upset with himself because he exited his 715 calls with a bit of a loss. I told him not to worry ... we were a bit overextended there. A high was made in September in between the 1.272 and 1.618 extensions, and it was the precursor to the largest decline ever seen in this stock.

AAPL Daily
Dynamic Trader

I'm not going to tell you that I knew that a dramatic decline would happen. If I knew that, I would have told you so. I only knew to watch for a potential termination of the move from the May 18 low, if only temporarily. As Apple got cheaper, I did still look at some buy-side setups with the rest of the world. The good news is that the risk was well defined for any of the new buy setups that did not end up playing out!

With that being said, keep an eye on the recent lows in Apple if we continue to hold above the timing lows in my recent article. We could at least see a corrective rally similar to the last one, which was $49 or so. If we break the recent lows instead, I will back off any countertrend trades until further notice.

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