Alphabet Charts Show Potential Breakout or 'Death Cross'
TheStreet
Alphabet (GOOGL) - Get Report opened Friday, July 5 on the cusp of its 200-day simple moving average at $1,125.27. The stock is also trading just below its five-week modified moving average at $1,122.22. It is also below its annual pivot at $1,143.31. Buy the stock above its annual and monthly pivots at $1,143.31 and $1,143.86, respectively, and reduce holdings on strength to its quarterly risky level at $1,245.43. A longer-term buy is on weakness to its "reversion to the mean" at $950.13.
The stock is thus poised for a breakout, which would target its quarterly risky level at $1,245.43 or for a "death cross" formed when the 50-day simple moving average, now at $1,131.51, falls below its 200-day simple moving average, now at $1,125.27.
How it trades next week will indicate what Alphabet do prior to when its earnings report is released on July 25. For a FAANG stock, Alphabet is reasonably priced with a P/E ratio of 22.49 without offering a dividend, according to Macrotrends.
The stock is up 7.5% year to date and up 14.9% from its Dec. 24 low of $977.66. This is the weakest performance among the FAANG Five. The stock is also in correction territory 13.4% below its all-time intraday high of $1,296.97 set on April 29. Despite this relatively poor performance, Alphabet is the only FAANG to set its all-time intraday high in 2019.
Back on June 4, I recommended that investors buy Alphabet on weakness to its value level for June at $1,034.36, which was tested on June 5. This strategy was made after the stock declined by a bear market plunge.
The bear market began after the stock gapped lower on April 30 after a huge negative reaction to earnings released on April 29, the day of the high. Remember that Wall Street was disappointed by a slowdown in ad revenue. YouTube click growth decelerated more than expected. Sales of Google's Pixel smartphones were disappointing. Investors remain concerned about continued DOJ investigations. On Monday, July 1 we learned that President Trump commented that Google, a unit of Alphabet, was one of the tech stock giants who oppose his chance to win re-election in 2020.
The Daily Chart for Alphabet
Courtesy of Refinitiv XENITH
The daily chart for Alphabet shows the risk of a "death cross" confirmation. Today, the 50-day simple moving average is $1,131.52 with the 200-day simple moving average at $1,125.27. If the 50-day declines below the 200-day, the stock will likely decline to a test of its Dec. 24 low at $977.66. The stock closed Dec. 31 at $1,044.96, which was the year-end input to my proprietary analytics. Still in play is the annual pivot at $1,143.31, which is now a risky level. The close of $1,082.80 on June 28 was input to my analytics and a monthly risky level at $1,143.86 lines up with the annual pivot. Quarterly and semiannual risky levels are $1,245.43 and $1,370.36, respectively.
The Weekly Chart for Alphabet
Courtesy of Refinitiv XENITH
The weekly chart for Alphabet will be positive if Friday's close is above its five-week modified moving average of $1,122.22. The 200-week simple moving average or "reversion to the mean' is at $950.13. The 12x3x3 weekly slow stochastic reading is projected to rise to 26.69 up from 24.80 on June 28. Without a close above $1,122.22 the weekly chart will remain neutral. Note the potential double-top formation with the highs at $1,291.44 set during the week of July 27, 2018 and the high of $1,296.97 set on April 29. Note that the week of May 3 was a weekly "key reversal" where the close at $1,189.55 was below the low of the prior week at $1,233.37.
Trading Strategy: Buy a weekly close above the annual and monthly pivots at $1,143.31 and $1,143.86, respectively, and reduce holdings on strength to its quarterly risky level at $1,245.43. A longer-term buy is on weakness to its "reversion to the mean" at $950.13.
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How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week; the monthly level changes at the end of each month. The quarterly semiannual levels were changed at the end of June. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.