How to Trade Alphabet Inc (GOOGL) Stock While It Corrects

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Not much has changed for Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) off the price chart in the past couple of weeks. But if we’re to believe price action is a leading indicator, the current narrative in GOOGL stock points more authoritatively at a corrective move in shares. Let me explain.

How to Trade Alphabet Inc (GOOGL) Stock While It Corrects
Source: Shutterstock

It’s been two full weeks since last writing about GOOGL. Not much has happened, except investors trying to forgive and forget. And conditions may have quieted somewhat for Alphabet, but the GOOGL stock chart is now looking a bit more like an enemy of the state.

At the time, Alphabet was and still is facing repercussions of marketing agencies and companies dropping YouTube and the Google Display Network advertising after learning content was placed alongside media showing terrorism and other acts of extremism.

For its part, Alphabet was quick to begin taking action and improve its “brand safety controls.” But for some prominent foreign and U.S. based advertisers, improvements haven’t happened quick enough and some key clients have pulled the plug on ad time.

The latest step in fighting this pervasive problem is Alphabet will only allow ads on YouTube channels when the number of views hit a threshold level of 10,000. The verdict is out whether that will actually help advertisers and the new protocol does have its critics.

In the interim and while the controversy plays out, if we’re to watch how Alphabet shares have traded since our last analysis, it’s looking more and more like a situation pointing to deeper corrective testing for GOOGL stock price.

GOOGL Stock Daily Chart


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Source: Charts by TradingView

On March 24, as annotated on the daily chart of GOOGL, I wrote of wanting to see a test of $795 to $825.

The zone holds a couple retracement levels, the 200-day simple moving average and would allow for a second test of the prior highs within an established uptrend.

Two days later, the upper band of support at $825 in GOOGL stock was tested. That’s the good news. What’s also occurred more recently is a bearish flag has developed against trendline resistance dating back to November.

With GOOGL stock now back below the 50-day simple moving average, the expectation is for the price action to break below the bear flag into a deeper double-bottom style. This would challenge the low set on March 26 and more significant penetration of the support zone.

GOOGL Targeted Long Put Butterfly

Considering my belief GOOGL’s corrective move isn’t finished, but not being overly bearish on the stock either, I like the long bearish-targeted April $830/$815/$800 put butterfly.

If the position sounds familiar, it is. Other than slightly lower strikes and adjusting the target down by $5, it’s the same strategy and virtually the same debit to enter as from our last analysis. The spread is valued at $2.15 with GOOGL stock near $840 and achieves its maximum profit of $12.85 if GOOGL falls by roughly 3.0% to $815 on expiration.

More achievable, the limited risk spread maintains a profit range from $802.15 to $827.85. Prior to that third Friday, gains can also be realized outside this area under the right market conditions.

Money management wasn’t required of the other butterfly position as the spread value held up. But like last time, I do believe cutting risk with a stop of 50% or $1.05 to $1.10 is a good policy.

Bottom line, the initial debit is small with this type spread, but continuing to hold during adverse conditions, a bullish reaction that nixes GOOGL stock’s bearish flag makes sense and possibly less cents lost.

Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

 


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/how-to-trade-alphabet-inc-googl-stock-while-it-corrects/.

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