Time to Be a Bear in Alphabet Inc Stock

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By the way Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) had rallied post-earnings, one would have thought that Alphabet stock had soundly beaten consensus. In fact, earnings came in a little shy and other metrics were decidedly worrisome. Yet GOOGL continued to rip ever higher — until yesterday.

What Ad Revenue Will Tell You About the Future of GOOGL Stock

Now that the rally has been staunched, I expect the highs to hold and for Alphabet stock to struggle to head appreciably higher over the near term.

Earnings last quarter for Alphabet stock were definitely a disappointment. EPS came in at $9.70 versus expectations of $9.98 while revenue did beat slightly. Most disconcerting was the rising cost structure which will have a negative effect on margins. More importantly, given the earnings miss and the subsequent stock rally, GOOGL is now trading at the highest P/E ratio (36) in many a year. For a mega cap stock such as Alphabet, hardly a bargain price.

From a technical perspective, Alphabet stock had risen seven straight days before reversing course yesterday. MACD had reached an extreme, and shares were trading at a massive premium to the 20-day moving average, which was a harbinger of trouble in the past. GOOGL also completely filled the post earnings gap before succumbing to the inevitable selling pressure.

The inability for Alphabet stock to hold on to new recent highs before reversing course to close sharply lower on the day is a key reversal day. This type of price action, especially after such a big rally, is many times indicative of a top in the stock.


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GOOGL options are trading at the 48th percentile of implied volatility (IV), making them neither cheap nor expensive. Now that Alphabet stock has fallen from the highs, I think a period of consolidation is on the horizon. That favors a short call spread trade based on the notion that Alphabet stock will have trouble breaking out to new highs over the coming weeks.

Alphabet Stock Trade Idea

Buy the GOOGL Apr $1,210 call and sell the GOOGL Apr $1,200 call for a $2.50 net credit.

Maximum gain on the trade is $250 per spread with maximum risk of $750 per spread. Return on risk is 33%.

Tim may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his option-based strategies can go to https://marketfy.com/item/options-and-volatility/.

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/time-to-be-a-bear-on-alphabet-inc-googl-stock/.

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