Why Alphabet Inc (GOOGL) Stock Is a BEAR Trade After Earnings

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Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is scheduled to report earnings today after the bell amid this big week for large-cap tech stocks. Apple Inc. (NASDAQ:AAPL) and Twitter Inc (NYSE:TWTR) have already reported, and Amazon.com, Inc. (NASDAQ:AMZN) will join GOOGL stock in the earnings confessional.

Beat the Bell: Alphabet Inc (GOOGL) StockGOOGL stock has been showing relative strength of late, even compared to its sector. But like other large-cap technology stocks, Alphabet’s push has been increasingly sluggish in recent weeks.

My No. 1 rule for trading Alphabet after earnings: Don’t chase!

Before looking at the charts and mapping out technically important areas of support and resistance for GOOGL stock, let me be clear: I am a big believer in the intermediate- and long-term prospects of Alphabet. As growth as an investment story is increasingly difficult to come by, this company is a gem — and one that shouldn’t be underestimated. Its innovations and products continue to positively surprise its followers and investors.

Considering Alphabet’s wide reach into technology and into our everyday lives, it’s hard to imagine the trend will end soon.

As it stands, Alphabet’s A and C shares (GOOGL and GOOG) combined make up just north of 9% of the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ). Thus, any meaningful move in Alphabet will likely have a notable effect on the Nasdaq-100.

GOOGL Stock Charts

If you look at the multiyear weekly chart, you’ll see that Alphabet stock has mostly pushed higher within a well-defined channel. The lower end of the channel comes in around its 50- and 100-week simple moving averages (yellow and blue lines, respectively). This is where the better longer-term buying opportunities exist.

googlweekly
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We also see that, thanks to the most recent rally in GOOGL stock off the late June lows, shares are once again pushing toward the upper end of this channel. This is where the risk-reward formula for the longs gets week.

Also note that the MACD momentum oscillator, while pointing higher, still is far from making new momentum highs versus the 2015 momentum highs. However, price did edge to new highs earlier this week. This negative divergence, while no catastrophe, doesn’t favor chasing GOOGL stock at these levels for the time being.

The options market is currently pricing in a roughly 5% move in GOOGL stock in either direction following tonight’s earnings report. In price terms, this would mean upside toward about $870 and downside toward about $780.

A move toward $870 or higher also would constitute a tagging of the very upper end of the big-picture trading channel shown above.

Alphabet Inc GOOGL stock chart daily view
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My playbook: If GOOGL stock rallies into the high $800s following tonight’s earnings report, I would look to sell out-of-the-money call spreads (a neutral to bearish bet). That’s because I would view such a move to be too exuberant in the near-term, and it would make Alphabet overbought.

In other words, again, don’t chase Alphabet stock higher after any meaningful post-earnings rally.

Should the stock drop 5% or more after earnings, things get trickier. Upon such a move, I would want to be a buyer again. But first, GOOGL stock would need to show a confirmed bullish reversal once more.

I’m watching out for $750 to $760 as better support.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/10/alphabet-inc-googl-stock-bear-trade-iplace/.

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