Alphabet Inc: Make a Bullish Bet in GOOGL Stock

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The stock market’s recent two-week rally has left some stocks highly overbought for the near-term, but it also validated a potentially bullish pattern in others.

Alphabet Inc: Make a Bullish Bet in GOOGL StockThe price chart of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), for example, now looks giddy to break higher after a two-week lift — and with earnings around the corner, it has a well-defined toggle date for this breakout to either take place or not.

While the S&P 500 remains lower by about 2% year-to-date, GOOGL stock is vastly outperforming the broader equity indices with a 27% gain. With relative strength like that, Alphabet Inc may be another prime candidate for the annual year-end performance chasing ritual carried out by underperforming fund managers.

GOOGL Stock Charts

A glance at the multiyear weekly chart of GOOGL stock shows that after a multiyear rise, it slipped into a consolidation phase in early 2014 — one that built a nice technical base. Ultimately, the stock broke out of this base to the upside after the July earnings report, and as a few high-beta darling stocks screamed higher before getting tagged (along with the broader market) with a nasty selloff in late August.

On the chart, however, we see that while GOOGL stock too fell off its highs in August, it held well above its July breakout point and has since built another higher base/consolidation formation that it could push higher from in the near future.

GOOGL stock charts weekly
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On the daily chart, we see that the post-earnings up-gap in July was filled during the August drop, which also served well as a backtest of the breakout point, and it looks constructive through a multimonth lens.

Alphabet’s price action has since formed a higher low in late September, and in fact the entire price action since the July highs has taken a “W” shape — what we refer to in technical analysis as an inverse head-and-shoulders pattern. A classic measure of this pattern calls for a price target in the high $700s, which for all I know the stock could rally toward quickly after next week’s earnings report (slated for the close on Oct. 22).

GOOGL stock chart daily
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From my perspective, active investors now could consider one of two ways to approach a bullish posture in GOOGL stock:

  • Build up a small long position in Alphabet Inc via GOOGL stock or via options heading into the earnings report. If Alphabet rallies after earnings, great. If it falls, the damage should be moderate considering the small size of the trade. If the stock falls and holds the $600 area, it would technically remain in a bullish pose that could still see it lift higher into year-end.
  • More conservative traders could wait until after the earnings report and see if the stock follows through higher. The risk there is that GOOGL stock runs away quickly, but with an ultimate price target in the high $700s, there still may be plenty of room to buy the stock.

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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

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