Alphabet (GOOGL) - Get Report missed analysts' earnings estimates on Monday, after setting an all-time intraday high of $1,299.24 just before the close of trading Conservative investors had the option to book profits at its fourth quarter risky level, now a pivot at $1,287.11.
The daily chart shows a potential double top with the highs of $1,296.97 set on May 3, and the pre-earnings high of $1,299.24 set on Oct. 28. The after-hours low Monday was $1,230.00, above its October value level at $1,216.93. My call is to buy weakness to its monthly and annual value levels at $1,216.93 and $1,143.31, respectively, and reduce holdings on strength to its quarterly risky level at $1,287.11.
Google earned $10.12 a share, well below expectations of $12.32, but even with this miss EPS was up 18% year over year. Revenue was a beat with a year-over-year rise of 20%. Operating margin was lower year over year and lower than expected. Advertising revenue looked solid, but the cost-per-click was higher. The bottom line is that it's tough to sustain a new share price high without beating on all key metric measures.
Before the earnings report, the stock closed Monday at $1,288.98, up 23.4% year to date and in bull market territory 31.8% above the Dec. 24 low of $977.66.
The stock has a reasonable P/E multiple of 24.34 for a FAANG stock that does not pay a dividend, according to Macrotrends. The stock ended a winning streak of beating earnings-per-share estimates for six consecutive quarters.
The Daily Chart for Alphabet
Courtesy of Refinitiv XENITH
The daily chart for Alphabet shows a stock that has significant earnings volatility. The stock reported earnings on April 29 then gapped lower on April 30. Then on July 25 the company had a price gap higher on July 26 on a positive reaction to earnings. Price gaps almost always get filled and the gap higher was filled on Aug. 5. The price gap lower on April 30 was filled pre-earnings on Monday. 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 was a magnet between Feb. 5 and March 8, then between May 13 and July 25. Note how the pivot provided a buying opportunity on Aug. 5. The close of $1,082.80 on June 28 was input to my analytics and the semiannual risky level for the second half of 2019 remains above the chart at $1,370.36. The close of $1,221.14 on Sep. 30 was another input to my analytics and a monthly value level for October is $1,216.91 and the fourth quarter risky level or pivot at $1,287.11.
The Weekly Chart for Alphabet
Courtesy of Refinitiv XENITH
The weekly chart for Alphabet will remain positive if Friday's close is above its five-week modified moving average of $1,231.78. The 200-week simple moving average or "reversion to the mean' is at $991.25. The 12x3x3 weekly slow stochastic reading is projected to rise to 77.44 this week up from 73.52 on Oct. 25.
Note that the weekly chart shows a potential triple top when you observe the high of $1,291.44 set during the week of July 27, 2018.
Trading Strategy: Buy weakness to its monthly and annual value levels at $1,216.93 and $1,143.31, respectively, and reduce holdings on strength to its quarterly risky level at $1,287.11.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.
The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.
The quarterly level changes after the end of each quarter so the close on Sept. 30 established the level for the fourth quarter. The close on Sept. 30 also established the monthly level for October as monthly levels change at the end of each month.
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.
Save 57% during our Halloween Sale. Don't let this market haunt you; join Jim Cramer's Investment Club, Action Alerts PLUS. Click here to sign up!
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.