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GOOG got slammed today
#msg-9930081 GOOG Mar 2006 340.00 Put (GGDOH)
Google's slump may signal wider U.S. stock pullback
http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:reuters.com:20060228....
Tue Feb 28, 2006 5:39 PM ET

By Jennifer Coogan

NEW YORK, Feb 28 (Reuters) - The sharp drop in the price of Google Inc.'s (GOOG.O: Quote, Profile, Research) shares on Tuesday may portend a long-awaited pullback in the broader stock market, technical analysts said.
FACT BOX
GOOG.O (Google Inc)
Last: $362.62
Change: -27.76
Up/Down: -7.11%

Even as key stock indexes were hitting 4-1/2-year highs before Tuesday's sell-off, a number of technicians had cautioned that a correction was likely, given the narrowness of the advance and the failure of the indexes to trade through key resistance levels for a sustained period.

With Google being such a high-profile market leader, it came as no surprise to some analysts that it would be among the first to stage a sharp retreat.

"If you take into consideration that this has been kind of a tech-driven market, and you have pretty widely watched technology stocks like Google getting hit, I think that kind of lights the fuse," said John Kosar, president of Asbury Research.

"If within the next couple of weeks, we start to break down through longer-term support levels, you could have" a pullback "that could be sustainable, and lasts a month or two," Kosar said.

But Google was hardly alone in Tuesday's slide.

Stocks that fell outnumbered gainers by a wide margin of more than 2 to 1 on both the Nasdaq and the New York Stock Exchange.

FOLLOW THE LEADER

In contrast, the U.S. stock market's recent highs came during sessions of lower-than-average light volume when advancers just barely outnumbered decliners.

"Those other signs of deterioration in the market, like advance-decline ratios and market breadth, all add up for the long-forecast pullback," said Michael Panzner, head of sales trading at Rabo Securities.

Still, the chart watchers are sanguine about the possibility of a stock market slump.

"You normally don't find new leadership until you get washouts and corrections," Panzner said.

It's the market leader that tends to be at the forefront of such washouts, Panzner said.

Google's 7.1 percent drop on Tuesday didn't come out of the blue. The stock is down 23.7 percent since Jan. 11, when it hit its lifetime high of $475.11.

On Tuesday, Google closed on Nasdaq at $362.62, down $27.76 for the day, after earlier falling as low as $338.51.

"The selling in Google has been under way for weeks and weeks," said Carter Worth, chief market technician at Oppenheimer & Co. "What is a real event is the selling that's started now in other stocks that heretofore had no weakness, like Caterpillar, Bear Stearns and Burlington Northern."

Shares of heavy equipment maker Caterpillar Inc. (CAT.N: Quote, Profile, Research), which have surged 26.5 percent year to date, fell 0.6 percent in Tuesday's session to close at $73.08 on the New York Stock Exchange.

Shares of investment bank and brokerage Bear Stearns Cos. (BSC.N: Quote, Profile, Research), up 16.4 percent so far in 2006, lost 1.4 percent on Tuesday to close at $134.44 on the NYSE.

The stock of railroad operator Burlington Northern Santa Fe Corp. shed 2.5 percent on Tuesday to end at $78.64 on the NYSE -- cutting its gain for the year to 11 percent so far.

Such stocks are set to fall now because they have risen to the point that they are vulnerable to the first investor who takes money out of the position and halts the advance, triggering a flurry of selling, Worth said.

"It's natural enough after the great period of appreciation we've seen," he added. "It's a necessary, overdue correction. This is a welcome beginning. And there will be more to come."