Alphabet (GOOGL) - Get Report shares have successfully retested a nearly four-month support line and are prepared to make a volatile move higher. This is just one of a number of technology stocks that have recently retested support lines, and have the potential to return to previous pattern resistance levels or to new highs.
Alphabet should be a leading indicator for the space. It is positioned on a well-tested support level and undergoing a volatility squeeze. The level of buying interest this move attracts should be a gauge on the general sector.
There are several ways to identify a potential volatility squeeze in a stock. One indication is when the upper and lower Bollinger bands move inside the Keltner channel boundaries. Bollinger bands are measures of standard deviation around a moving average. Keltner Channels are a measure of standard deviation using average true range.
It is unusual for the Bollinger Bands to contract to a point where they enter the Keltner channel and this reflects a level of extremely low volatility. Periods of low volatility are often resolved by periods of high volatility, and in the case of Alphabet, the resolution should be higher.
Moving average convergence/divergence has made a bullish crossover and the stochastic oscillator has crossed above its center line. These indicators reflect positive short-term price momentum and potential trend direction. The stock has broken above short-term resistance in the $945 area, and is retesting its upper Bollinger band.
It appears the breakout is underway and the first upside price objective is to fill the July downside gap by returning to the resistance level of a large horizontal channel.
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The author is an independent contributor and at the time of publication had no position in the stock mentioned.