Alphabet (GOOGL) - Get Report opened Tuesday above its value level for June at $1,034.36 after trading as low as $1,027.03 following Monday's plunge on reports of Department of Justice investigations. My call is that you can "catch a falling knife" if you have a value level as a glove.
The weekly chart for Alphabet is negative and longer-term the downside risk is to the "reversion to the mean" (200-week simple moving average) at $941.02 and rising each week.
Alphabet is the only FAANG stock to set its all-time intraday high in 2019 when it traded as high as $1,296.97 on April 29. Earnings were released after the close that day and poor guidance began the stock's plunge. At the June 3 low of $1,027.03 the stock was in bear market territory 20.8% below the high. The Dec. 24 low was $977.66.
Remember the reasons why Alphabet began its slump after setting its all-time high; Wall Street analysts were disappointed by a slowdown in ad revenue. YouTube click growth decelerated more than expected. Sales of Google's Pixel smartphones were disappointing. The company had just paid a $1.7 billion fine from the European Commission and was hurt by currency exchange rates. Now investors will have their eyes on events related to the DOJ investigations.
TheStreet covered the probe of antitrust issues for the big tech FAANG stocks on Tuesday. For Alphabet, the focus is on business practices that could lead to a breakup, according to Bank of America.
The Daily Chart for Alphabet
Courtesy of Refinitiv XENITH
The daily chart for Alphabet shows that the stock was on a bull market run of 24.6% from its Dec. 24 low of $977.66 to its April 29 all-time intraday high of $1,296.97. Note the huge price gap lower on April 30 caused by the factors stated above. The stock closed Dec. 31 at $1,044.96 which was the year-end input to my proprietary analytics. Still in play is a semiannual pivot at $1,250.72 and an annual pivot at $1,143.31, which are now risky levels. The close of $1,176.89 on March 29 was input to my analytics and a quarterly risky level is unreachable at $1,314,19. The close of $1,103.35 on May 31 was input into my analytics are resulted in a value level of $1,034.36 for June.
The Weekly Chart for Alphabet
Courtesy of Refinitiv XENITH
The weekly chart for Alphabet is negative with the stock below its five-week modified moving average of $1,141.00. The 200-week simple moving average or "reversion to the mean' is at $941.04. The 12x3x3 weekly slow stochastic reading is projected to decline to 28.11 this week down from 39.28 on May 31.
Trading Strategy: Buy weakness to its monthly value level at $1,034.36 and add to positions on weakness to the "reversion to the mean" at $941.04 and reduce holdings on strength to its annual pivot at $1,143.31.
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 semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March, April and May. The close on May 31 established the monthly level for June. The quarterly level was changed at the end of March. 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.