As the broader stock market melted higher to new all-time highs, large-cap technology stocks as a group did not miss the rally. Shares of Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), however, while lifting in recent days, have yet to break out higher past their summer highs. GOOGL stock could thus be next on the list of breakout candidates if it wants to follow the rest of the group.
I remind my direct clients and subscribers on a daily basis that the stock market is a highly correlated asset class. In other words, (market weighting aside) when the broader indices rise, that is a function of most stocks also going up, and vice versa. This dynamic allows for a variety of high-probability strategies, including one where laggard stocks could be bought if the group or sector it belongs to sees a strong rally.
That is exactly the trade that I see setting up here in GOOGL stock.
GOOGL Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
For some perspective, starting out with the multiyear weekly chart, we see that over the past few years this stock has largely traded higher in a defined up-trending channel. Since reaching the top end of the channel in July the stock has consolidated sideways. While in my eye a longer-term sustainable breakout above this channel is unlikely, in the near-term an “overshooting” move is entirely in the cards.
In my 21 years as a trader, I have found that a multi-time-frame approach to the markets is often what separates winning traders from the rest.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that GOOGL stock in July broke past horizontal resistance around the $1,200 mark and over the ensuing weeks in its consolidation phase retested this previous resistance level again (now support). Note that the $1,200 area currently also coincides with the stock’s yellow 50-day simple moving average.
Over the past couple of trading days, the stock has attempted to break out of this recent consolidation phase. A simple trade would be to buy the stock around $1,260-ish with a next upside target at $1,320 while any strong bearish reversal would be a stop loss.
Alternatively and a trade with much higher probability of steady success, one could look to sell out of the money put option spreads on GOOGL stock, simply making the bet that the stock won’t fall much from here. To learn all about this amazing income strategy I am holding a special webinar ttoday for InvestorPlace readers. Register here.
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