Alphabet Inc (NASDAQ:GOOGL) and tech stocks as a group bounced in Monday’s trading session. And while one day does not make a trend, this is at least worthy of our attention. Considering that the prospects of a further year-end rally in stocks remains very much on the table, GOOGL stock and other tech equities could once again be atop the list of stocks to chase higher.
Before going any further and digging into the charts, there are two important points to understand for the month of December, as far as the stock market is concerned:
- While seasonal patterns often work as a good guide to the general direction of the stock market in various parts of the year, the year-end or “Santa Claus” rally in my opinion is one of the most reliable seasonal patterns.
- To respect the possibility of this year-end lift in stocks, it is important to understand the dynamics behind it.
Similar to other month- and quarter-end periods throughout the year, December is a time when fund managers window-dress their portfolios. This is the practice of buying strong-performing stocks during the period and selling down losing ones to show investors that the fund was invested in the right stocks.
In December, this practice is magnified because under-performing fund managers also must try one last attempt to meet or beat the benchmarks against which their performance is measured, which in turn forces them to chase those stocks higher that had the best performance or show the most promise.
Thanks to this phenomenon, tech investments such as GOOGL stock could once again be on the buy radar heading into year’s end.
GOOGL Stock Charts
When I last discussed GOOGL on Nov. 17, I offered that the stock market seems to be rotating back into the tech sector. Since then, Alphabet shares have indeed bounced, but the year-end lift hasn’t really taken off.
On the multiyear chart we see that the uptrending channel within which GOOGL stock has been trading for the past few years remains intact. The stock currently trades in the upper half of this channel, which is supported by the yellow 50-week simple moving average.
On the daily chart, we see that the November lows thus far continue to hold.
Those November lows took place at a critical confluence support area made up of the red 200-day simple moving average, the diagonal support (former resistance) line and at the 50% retracement line of the rally from the June lows up into the late October highs.
All of this also coincided with the aforementioned 50-week moving average from the weekly chart above.
In other words, the area around $740-$755 is an important near- to possibly intermediate-term support area against which traders could consider playing GOOGL stock from the long side into year’s end.
Use an upside target near $820. Respect any bearish reversal as a potential stop-loss sign.
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