Is Alphabet's Stock Chart Revealing a Breakdown?
Alphabet (GOOGL) - Get Report shares have been trading in a hundred-dollar range for the last six months, below resistance at the $800 level and above key technical support in the $700 area. This support level is a 38% Fibonacci retracement of the July 2015 low and February 2016 high and the bottom end of the gap move higher last October.
Shares are once again retesting support, but this time they are being accompanied by a series of bearish indications and a major moving average breakdown.
Last week the stock moved below both the uptrend line that marked the run off the July low and its 200-day moving average. Daily moving average convergence/divergence is overlaid on a weekly histogram of the indicator and is below its centerline on both time frames. The Vortex indicator, which is designed to identify early shifts in trend, recently made a bearish red-over-green crossover, while the relative strength index has moved below its centerline to the upper boundary of its oversold range. These indications reflect a short-term change in price momentum and trend direction and are supported by a decline in positive money flow over the last two months. The accumulation/distribution line is back below its 21-period signal average, and Chaikin money flow is tracking into negative territory.
Channel breakouts or breakdowns normally project a price target measured using the height of the pattern and adding or subtracting it to the break point. In this case, a breach of support would suggest a move down to the $600 area. It would also establish a quadruple top on the chart, and while that does not project any particular downside target, it would reinforce the $800 level as formidable future resistance.
From a fundamental perspective, Alphabet is a holding in Jim Cramer's Action Alerts PLUS charitable portfolio. Cramer and Research Director Jack Mohr recently wrote:
"As we mentioned in our analysis of the quarter, Google continues to execute very well, but simply fell victim to extremely high expectations. Remember that Google has over 1 billion active users on at least seven separate platforms and maintains a dominant position in its core search business. In addition, we view its growing cloud presence and YouTube's ramping monetization as key growth contributors moving forward. The management team continues to invest for the long term and we have confidence that these bets, some less risky than others, will pay off over time. In addition, we view the weakening dollar as providing a major lift for Google should the trend lower continue for the balance of the year."
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
