The broader stock market remains notably choppy, with seemingly every headline in recent days and weeks pushing most stocks in sync up or down. As a result, a well-defined trading range has formed on the daily charts not only on some key indices but also on some major stocks such as that of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). Traders could now look to trade GOOGL stock long or short depending on which direction the stock will break out of this well-defined trading range.
As an important reminder, stocks are a highly correlated asset class, which is to say that particularly when volatility rises most stocks will rise on any broader market up day and vice versa for down days. Likewise, when the broader market chops sideways as it now has done for a few days and indeed a couple of months, most stocks will do the same.
This is why I always primarily advocate a so-called top-down approach to analyzing and trading the markets. Such an approach starts with an assessment of the broader stock market’s direction and then drills into individual sectors and groups of stocks before ever considering a single stock or option trade. The reason why this works so well is simple mathematics and an understanding of basic correlations.
GOOGL Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
With this in mind let’s look at the multiyear weekly chart of GOOGL stock and note that as a result of an above-average amount of giddiness, the stock in January broke above the upper end of its up-trending channel. We can call this a classic overshooting rally and one that usually ends up with a mean-reversion move lower into its primary trading channel.
Over the past two months, that is exactly what has transpired as buyers exhausted themselves in January. From this bigger picture angle, the stock in my eye could call into the low to mid $900’s before a better buying opportunity arises.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
For the more active trading and investing crowd, however, GOOGL stock at this juncture does offer something interesting. Note that over the past few trading days the stock has chopped back and forth within a well-defined box as marked with the pink square on the chart. The upper end of this box is just around $1,047 and the lower end closer to $995.
While the stock could break in any direction in the near term, for now I am focusing on a potential break out of this range to the upside. If and when GOOGL stock were to break above $1,047 then a next upside target could quickly become the $1,090 area and any bearish reversal on a daily closing basis would be a stop loss signal.
This is a pure cash-flow trade idea for that is what this current market is giving us.
Access Serge’s Free SSO Strategy eBook HERE — find high-probability trades like a Wall Street professional.
Check out Anthony Mirhaydari’s Daily Market Outlook for April 10.
Tell us what you think about this article! Drop us an email at editor@investorplace.com, chat with us on Twitter at @InvestorPlace or comment on the post on Facebook. Read more about our comments policy here.
