The trend these days is looking a bit friendlier in shares of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). But if you’re looking for GOOGL stock to rally while protecting your own bottom line through earnings, purchasing a low-cost, modified- and limited-risk spread is an attractive alternative. Let me explain.
A month ago, the situation in GOOGL stock, off and on the price chart, warranted a more cautious stance on the part of bullish investors in our estimation.
Conditions in GOOGL weren’t dire, but a recent Goldman Sachs downgrade and souring tech stock sentiment (following an overbought rally) had this strategist looking at a more defensive spread idea, before turning bullish, using an unorthodox put butterfly credit spread.
Shares in fact did manage to move lower by a couple percent, netting the correction’s total decline at just over 9%. It’s a healthy pullback to be sure, especially for a mega large-capitalization stock sporting a market Beta of 0.92. That point is made all the more compelling if one compares the S&P 500’s sub 2% and Nasdaq’s 5.5% corrections from their respective June highs. But is a lasting bottom in place in GOOGL stock?
Personally, nobody except perhaps Goldman Sachs knows when a bottom may have been put in in advance of a turnaround. Nevertheless, I do see sufficient evidence on GOOGL stock’s price chart worthy of considering a bullish options strategy focused on capturing some anticipated upside without breaking the bank.
GOOGL Stock Weekly Chart
Click to Enlarge As alluded too above, in my last discussion of GOOGL stock, the technical observation was that shares were unlikely to have found a low. It turns out our cautious stance was well-served.
At the time, a lightening fast reversal from all-time highs unwound an overbought weekly Bollinger band condition. However, that bit of good news was countered by a still prone stochastic position and Alphabet’s price spread relative to the 40-week, or 200-day, simple moving average.
Currently, and following a few more weeks of consolidating and a more meaningful corrective low, conditions are looking better for Alphabet shares.
Bottom line, with GOOGL now flirting with an oversold stochastics condition with a bullish weekly chart hammer confirming a successful test of the upper channel line for support. Net, net it’s time to be look for some upside capture in the coming weeks using a lower and limited-risk spread on Alphabet.