Shares of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), along with other large FAANG-related stocks, continued their thus-far modest but much-needed pullback on Monday, and in so doing further diverted in the near-term from the broader stock indices. However, considering the strongly trending charts and growth narratives as well as the year-end dynamics of fund managers having to stay allocated to these stocks, another buying opportunity may be just around the corner.
Over the past few weeks, I have repeatedly highlighted that under-performing fund managers (often times a good percentage of mutual funds) are forced to chase or at least not sell their holdings into year-end of any given year’s best-performing basket of stocks.
In 2017 a major component of the 2017 best performers are once again the FAANG stocks.
To be clear, while this dynamic does not guarantee another melt-up of something like GOOGL stock into year-end, it is difficult to imagine a real melt-down in these stocks before the year is up.
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear weekly chart, we see that GOOGL — like other FAANG names — remains a trend-following story. While trend following in my eye and experience is one of the most consistently profitable active investing strategies, it must be done the right way.
One of the easiest ways to lose money as a trend follower is to chase the highs and buy into the upper end of ranges. Over the past few weeks GOOGL stock once again shot up to the very highs of its 2.5-year up-trending channel where, in my eye, buying the stock was a low-probability trade.
Although the stock remains very much in the upper third of the aforementioned up-trending channel (purple-dotted parallels), the year-end dynamics may offer a buying opportunity again real soon.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that GOOGL stock in late-October broke out of a multi-quarter sideways consolidation phase. The thus far roughly 6.50% pullback over the past week has not merely mean-reverted the stock back to this previous line of resistance that could soon become support.
Tourist technical analysts will point out that the stock has now also found its yellow 50 day simple moving average. While that is a fact and the stock could indeed bounce from here, I would ask what level of comfort this moving average has given investors in recent months? Answer: Not much.
As such, what GOOGL needs to show me here before I can buy it again is a bullish reversal that confirms the selling is done and a new up-leg is set to get under way. This would happen if the stock rallied at least 2%-3% on a single-day closing basis along with a broader lift in the Nasdaq 100.
Bullish reversals such as the one i am now waiting for by GOOGL stock offer wonderful opportunities for traders and investors to put on income trades for monthly or quarterly income. If you would like to learn more about this strategy then please join my next webinar on this topic on Tuesday Dec. 5. Register HERE.
Check out Anthony Mirhaydari’s Daily Market Outlook for Dec. 5.
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