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GOOG Gagged 
Tuesday, September 9, 2008
By Jason Thompson
The US Treasury threw a party Monday, bailing out Fannie, Freddie, and the FHLB system as well as the multitudes that had previously purchased their debts. As a result the US broad market soared, but the NASDAQ barely participated and Google did anything but, falling a "very big" -5.5%. GOOG has been on a downslope of late, falling 4 of the past 5 days, in-fact it was as high as $482 just last Tuesday. Alas Google closed Monday's session at $419.95, down -9.4% for the week even though the S&P 500, an index of which it is a member, rallied more than 2%. Is such a divergence a tipoff of further weakness or will GOOG get its act together?
Q: What happens when GOOG is down 'big' on a day the S&P 500 is up 'big'?
A: The future doesn't look that bright for Google, with all 7 of the past instances falling over the next 17 to 21 trading days. GOOG has shown a very strong bearish edge that peaks 19 trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Monday, 8 September 2008) is Friday, 3 October 2008. GOOG declines in 100% of the cases (7 of 7) by an average of -6.5% relative to the close on the event date. The overall return of the 7 cases is -6.5%, which, based on the close of GOOG on the event date (419.95), provides a target price of 392.65.
The t-stat, tested at the -4% hurdle, is a solid -2.5 which places the test in the 97.5% Confidence interval, meanwhile the Sharpe ratio (ZStat in the table below) is an incredible -2.25.
If you would like to see this trading idea in EventEdge, click here3.
Jason Thompson4 is a Chicago-based speculator focusing on electronically traded derivatives and their underlying instruments.
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Let variable values:
@ = GII.GOOG.NASDAQ
theEvent = IF
1 value percent_move of @ is less than
(30 day average of 1 value percent_move of @ -
(1 * 30 day std_dev of 1 value percent_move of @
)
)
AND
1 value percent_move of SPX is more than
(30 day average of 1 value percent_move of SPX +
(1 * 30 day std_dev of 1 value percent_move of SPX
)
)
THEN 1
ENDIF
Date Day t+17 t+18 t+19 t+20 t+21
10/26/2004 Tue -7.84 -6.82 -9.19 -7.85 -3.87
11/04/2004 Thu -1.47 -2.57 -2.87 -2.33 -4.55
02/04/2005 Fri -9.39 -8.49 -9.03 -7.61 -9.38
06/27/2007 Wed -2.62 -2.34 -3.14 -3.48 -2.74
01/23/2008 Wed -3.46 -7.23 -7.22 -8.34 -7.44
02/01/2008 Fri -8.34 -7.85 -8.67 -11.41 -13.82
02/25/2008 Mon -11.19 -10.87 -5.32 -7.33 -5.81
09/08/2008 Mon NaN NaN NaN NaN NaN
Avg -6.33 -6.60 -6.49 -6.91 -6.80
AvgPos NaN NaN NaN NaN NaN
AvgNeg -6.33 -6.60 -6.49 -6.91 -6.80
PctPos 0.00 0.00 0.00 0.00 0.00
PctNeg 100.00 100.00 100.00 100.00 100.00
Maximum -1.47 -2.34 -2.87 -2.33 -2.74
Minimum -11.19 -10.87 -9.19 -11.41 -13.82
StdDev 3.76 3.12 2.73 3.07 3.82
ZStat -1.68 -2.12 -2.38 -2.25 -1.78
Variance 14.15 9.72 7.45 9.45 14.58
8 Occurrences |
Comments:
Web Address of this trading idea:
Links:
2 http://www.markethistory.com/content/analog/analog.html?ticker=GOOG
3 http://www.markethistory.com/content/events/chart.html?ticker=GOOG&events=DownL0,SPXUpL0
4 http://www.markethistory.com/staff/detail.html?s=jason