Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) shares made an important rally Thursday — one that brought Google stock to a first line of resistance I discussed just two weeks ago.
Now, GOOGL looks like it can push higher still as it catches up with the broader tech and communications sectors, which also have rallied meaningfully in recent weeks.
On Feb. 12, I shared a trade idea in Google stock as shares began to show some post-earnings traction to the upside. Now, that trade is in need of an update.
On Thursday, news broke that Google is to invest $300 million in SolarCity Corp (NASDAQ:SCTY), which may have been at least partially responsible for the rally in GOOGL.
Google Stock Charts
The multiyear picture on Google’s weekly chart below has the same bullish backdrop as what I discussed two weeks ago. Namely, while GOOGL did not move higher in 2014, it did constructively consolidate its sharp 2012-13 rally. The late 2013 rally pushed Google stock higher into early 2014, but then settled the stock into what can now be labeled a very large bull flag pattern, which as the name indicates tends to ultimately resolve to the upside.
From a momentum perspective, GOOGL also has plenty higher left to go, as the Relative Strength Index (RSI) at the bottom of the chart in blue is just beginning to curl higher.
Looking at the daily chart below, after the most recent rally in Google stock, the entire price action since last November could be looked at as a rounding bottom or even an inverse head-and-shoulders pattern, either of which are bullish in nature. GOOGL had a weak start to 2015, but by Jan. 12, it had developed a bottom that has since seen a series of higher lows develop, each with bullish reversal days on Jan. 29 and Feb. 24.
On Feb. 12, I said the following:
“Chances are, if GOOGL can accelerate higher past the $540-$543 area, then the 200-day also shouldn’t be too much of an object to overcome and the $580-$590 area would be reachable in the intermediate term.”
Note that the 200-day simple moving average (red line) has served as a good line in the sand for the stock over the years. In May 2014, the stock bounced off the moving average only to break below it in October. With Thursday’s 2.19% rally, GOOGL stock is now revisiting this moving average for the first time since last October.
While potentially immediate-term overbought, if Google stock can hold the recent gains and consolidate below/around the 200-day for a while, then an ultimate break back above the moving average could get the stock moving back toward the $580-$600 area.
Active investors that did not yet buy the stock on the break above $540 can now look go buy it around the $550 area, while as always, any significant bearish reversal of the recent gains should be respected.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
