Bears sunk their collective ‘fangs’ into large-cap tech stocks Monday. Yet when it comes to Alphabet Inc (NASDAQ:GOOGL), it’s important to appreciate that one day does not make a trend. GOOGL stock bulls are still in charge. Let me explain.
Go ahead and blame Google stock price’s almost-1% decline on North Korea and mounting geopolitical tensions with the United States. Most investors seeking cause and effect, invariably will. And in truth there was a pronounced sector rotation Monday.
Defensive areas like gold and dividend stocks jumped higher to kick off the week. At the same time investors and algorithms dove out of growth-based market barometer FANG constituents including GOOGL stock.
All told, the evidence points at both humans and machines busy dusting off and getting reacquainted with the risk-off playbook.
Of course, geopolitical theater most often has the staying power of a leaf in a tornado, thus is best ignored. But sometimes a single day’s price action can be a defining moment, such as with fellow FANG stock Facebook Inc (NASDAQ:FB). Shares of FB fell more than 4%, shattering a couple months of solid technical work on Monday. But GOOGL isn’t FB stock.
At the end of the day — well, at the end of Monday at least — GOOGL stock bulls are still in position on the price chart to mount a strike to the north.
GOOGL Stock Weekly Chart
A Base Is Building
For the better part of two months, GOOGL stock price has been consolidating laterally in a narrow base. With the technical action backed by a converging uptrend and lateral support line, as well as a flat and tightening Bollinger Band, there’s decent evidence a base is building.
I believe GOOGL could eventually resolve itself to the upside within its uptrend. As shares have been consolidating for nearly five months, it’s certainly put in solid technical work to afford a bullish platform. However, our optimism doesn’t preclude some technical hazards.Admittedly, there is a possible double top in place and stochastics, while oversold, is showing a bearish crossover. It’s not the type of price evidence that investors can simply ignore, but nor is it time to run and hide. Net net, I like GOOGL but believe requires tracking on the radar for a bit of trade confirmation.
GOOGL Bull Call Spread
Our early warning signal for bullish longs in GOOGL is to the north and above the September high of $958.33. A move of that magnitude is anticipated to keep traders out of trouble and acting only if the trend reasserts itself by making a one-month high and reclaiming the 50-day simple moving average.
Use GOOGL Stock Options
Another layer of protection which is always emphasized is designing a limited-risk position using options. In reviewing GOOGL’s calls and puts and given what’s been addressed, I like using the November $1000/$1015 call vertical.
With shares at $934.60, the spread is currently valued at $2.75. If traders are agreeable to waiting on the discussed price confirmation through $958.33, the vertical would fetch $3.75, give or take 25 cents, if the move happened in the next couple weeks.
If trade confirmation is triggered, a rally of a few percent is still required for the vertical to go in-the-money and maintain intrinsic value at expiration. But given earnings are in the mix, the spread offers a nice payoff approaching 3-to-1 and is priced for less than 0.50% of GOOGL stock risk — it’s worth the wait, in our view.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 and StockTwits and feel free to click here to learn more about how to design better positions using options.
