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Google on Precipice After Picking Wrong Fights

Tuesday, 27 Apr 2010 | 12:08 PM ET

Google shares are on the verge of breaking a key technical support level, which could mean at least a 6 percent drop from current levels, according to traders. The chart is reflecting the decision by the world’s largest search engine to go to battle with three mighty forces: China, Microsoft and Steve Jobs.

Yesterday, the stock closed at $531.64, less than $7 away from the $525 level where it bottomed two times earlier this year and at the end of 2009. If the stock breaches that so-called support, $500 could be the next stop as the previous buyers at that level become sellers.

“The decision to leave the China market is akin to ‘New Coke’,” said Jon Najarian, co-founder of OptionMonster.com and TradeMonster.com. “They owned the search market and then they blinked. Add in the ‘Nexus One’ phone and the move against Microsoft to give away free software and they are simply picking fights with the wrong guys.”

Goldman Sachs removed Google from its widely followed ‘Conviction Buy List’ Monday night, citing the company’s “in-line first quarter results” and the stock’s underperfomance versus the market. But others are losing more than just conviction on the stock, they’re selling. Since reaching almost a three-year high on the first day of 2010, the stock is down more than 13 percent.

Google already broke a key milestone on Monday, when it closed below its 200-day moving average, according to Joe Terranova, chief market strategist at Virtus Investment Partners. Traders watch this metric for confirmation of a long-term trend. “Nobody is talking about Google going to $490” but yet this breach makes it a possibility, said Terranova, also a ‘Fast Money’ trader.

While Google shares are the ninth worst performer in the S&P 500 this year, Apple’s stock is up 25 percent. Meanwhile, Baidu, Google’s biggest competitor in China, is up more than 50 percent. Microsoft is underperforming the market, but nonetheless finds itself in the green, up one percent for 2010.

For the best market insight, catch 'Fast Money' each night at 5pm ET on CNBC.

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