Alphabet Inc (GOOG, GOOGL) tripped on Friday, but whether it was Citigroup’s concern about waning search-marketing spending or something else that did it isn’t perfectly clear. Then again, it doesn’t exactly matter why GOOG stock faltered — just that it did.
When taking a step back and looking at a chart of GOOGL over the course of the past few weeks, it becomes clear enough that such a stumble was in the cards no matter what. Traders were just waiting for the right excuse to slam Google.
Trouble is, GOOG stock just broke under the proverbial point of no return. Now the odds are high that Google will have to make good on the bearish hints the chart has been dropping since April.
Google’s Trouble in the Works for a While
The bulls can spin it however they want, but there’s no way they can say GOOG stock isn’t suddenly in a heap of trouble.
Although shares had managed to use the pivotal 200-day moving average line (green) in early May as a floor and then a pushoff point for a minor rally effort, that didn’t happen on Thursday. On Thursday, GOOG plowed into the 200-day moving average line, then decidedly broke under it on Friday, making a lower low in the process.
There’s no technical support left to serve as a floor and help stop the selling.
Were it just the break below the long-term moving average line, it might be dismissible; all stocks ebb and flow sometimes. It wasn’t just Google’s breakdown below an important moving average line, though. There’s a lot of bearish context to go along with it.
One of those contexts is the interplay of all the key moving average lines.
It’s a nuance of technical analysis, and a subjective one of that. But it’s telling that all of GOOG’s previously divergent moving average lines are about to converge again … moving in the other direction. This isn’t an unusual scenario for a stock’s major turning points. In this case, the “turn” is a turn from a bullish trend to a bearish one.
Another big red flag: Through Wednesday, volume had been light for GOOGL and GOOG stock. The sellers certainly started to come out of the woodwork on Thursday, though. With some long-term profits to protect and a little panic starting to set in, other would-be sellers have every reason to start defensively dumping the stock as well, exacerbating the weakness we’ve already seen.
Never even mind the fact that we’ve established a pattern of lower highs since early February.
Bottom Line for GOOG Stock
As for where this is all going, there’s still one smidgen of near-term hope for fans and owners of GOOGL and GOOG stock — there’s a relatively well established floor around $687. That’s close to where the 38.2% Fibonacci retracement line lies, and GOOG has used that area sparingly as support a few times since February. It’s not completely shocking today’s low was also right around that mark. Until Alphabet shares break below that floor, short-sellers can’t afford to assume anything.
Should the lower edge of that support band break ($685) though, there’s no support again until the stock gets to the $620 area where the 61.8% Fibonacci retracement line is waiting. That’s apt to be the best downside target if the stock continues to deteriorate and pulls under its current floor.
The latter looks to be the higher-odds outcome at this point.
Of course, Fibonacci retracement lines are only tendencies, and not etched in stone. It’s just as important to look for capitulation days, or high volume selloffs, that untimely suggest the last of those would-be sellers has been flushed out. Ideally, any capitulation and revisit of the Fibonacci line at $620 would happen at the same time, serving up a fantastic buying opportunity.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.