Alphabet (GOOGL) is a buy between its 200-day simple moving average at $1,149.14 and its annual value level at $1,143.31. The stock has been above a "golden cross" since April 1 and under my guidelines is a buy on weakness to its 200-day SMA. The stock has been above its annual value level since March 8 as a level at which to buy on weakness.
Alphabet was trading at an all-time intraday high at $1,296.97 pre-earnings on Monday then dropped by 7.5% on Tuesday. Volatility provides trading opportunities as the stock remains above a "golden cross," but faces a weekly "key reversal."
Alphabet remains overbought on its weekly chart, but this chart provided a huge warning before the company reported its earnings. The stock had a 12x3x3 weekly slow stochastic reading above 90.00 on a scale of 00.00 and 100.00. I call this technical format an "inflating parabolic bubble" and this bubble is bursting now. The concern that should drive the stock down to its 200-day SMA is the formation of a weekly "key reversal." After the stock set its all-time high then closes below the prior week's low, this "key reversal" will be confirmed. The low for the week ending on April 26 was $1,233.37.
Here are some reasons cited for the Alphabet flop. 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 also disappointing. Another factor was the payment of a $1.7 billion fine from the European Commission. Alphabet was also hurt by currency exchange rates.
Longer-term growth is seen from Waymo, its self-driving venture, and Verity in health-related activities. Alphabet owns about 5% each in Uber and Lyft (LYFT) .
The Daily Chart for Alphabet
Courtesy of Refinitiv XENITH
The daily chart for Alphabet shows that the stock declined by a bear market 24% from its 2018 all-time intraday high of $1,291.44 set on July 27 to the Dec. 24 low of $977.66. The day of the high was a negative "key reversal" that warned of the downside risk. The stock has been above a "golden cross" since April 1 when the 50-day simple moving average rose above the 200-day simple moving average. This targeted higher prices and indicates that investors should buy weakness to the 200-day SMA now at $1,149.14. The stock closed 2018 at $1,044.96, which was the year-end input to my proprietary analytics. Still in play are a semiannual pivot at $1,250.72 and an annual pivot at $1,143.31. The close of $1,176.89 on March 29 was input to my analytics and a quarterly risky level remains at $1,314.19. The close of $1,198.96 on April 30 was input into my analytics and resulted in a value level of $1,052.54 for May.
The Weekly Chart for Alphabet
Courtesy of Refinitiv XENITH
The weekly chart for Alphabet is neutral with the stock below its five-week modified moving average of $1,200.57. The 200-week simple moving average or "reversion to the mean" is at $929.01. The 12x3x3 weekly slow stochastic reading was projected to be above the 90.00 level, which as an "inflating parabolic bubble" warning. Instead, this reading is projected to slip to 85.78, still above the overbought threshold of 80.00.
Trading Strategy: Buy weakness to its 200-day simple moving average at $1,149.14 and its annual value level at $1,143.31 and reduce holdings on strength to its semiannual pivot at $1,250.72.
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 and April. 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.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.