Shares of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) are up about 4% so far in 2016. While that’s positive territory for the year, GOOGL stock does lag the nearly 7% year-to-date move of the S&P 500 and the 6% rally in the Nasdaq.
Judging by Tuesday’s price action, though, Alphabet shares could be ready to start filling that gap.
When I last discussed GOOGL stock on Aug. 5, I said Alphabet was trading at a critical technical juncture where the bulls were in control and the path of least resistance looked higher. After Tuesday’s rally on nice volume, GOOGL shares look like they’re on their next leg higher.
Before looking at Alphabet’s charts, a word of caution as it relates to the seasonally weak/volatile period of September and October. As much as any single stock can move in any direction regardless of the market’s direction, the reality is that at least 80% of stocks move with the ebbs and flows of an index like the S&P 500.
While I remain positive on stocks through the end of 2016, I do see an increasing amount of warning signs on the horizon that could lead to a 5%-10% correction in the S&P 500 or another large index through October. If and when this happens, even strong stocks like GOOGL are likely to pause or even correct.
GOOGL Stock Charts
First, we’ll look at the multiyear weekly chart.
We see that as a result of a steep ascent off the late-June reaction lows, GOOGL stock is once again nearing the very upper end of its multiyear ascending trading channel. Through this lens, it makes little sense to chase Alphabet higher here. This also coincides nicely with my aforementioned warning about September and October.
However, as investing and trading is all about time-frames, the setup on the next chart does offer a good looking ‘trade.’
On the daily chart, we see that GOOGL stock gapped higher after earnings in July, then settled into a consolidation phase that over time took on the shape of a bull flag pattern, which I marked with the two pink-dotted parallels. This consolidation phase also took place nicely just near/above previous horizontal resistance around the $790-$800 zone.
Monday’s large-cap technology stock rally helped to lift GOOGL stock out of this consolidation phase and back above the $800 mark on a daily closing basis.
From here, barring any meaningful bearish reversals on a daily closing basis, the next upside target for Alphabet stock should be in the $830-$840 zone.
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