Alphabet (NASDAQ:GOOGL) shares have sat out the latest stage of the tech rally. While its peers Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) have been heading to the stratosphere, Alphabet stock has stumbled. Since peaking in mid-July following a solid earnings report, GOOGL is down nearly 10%.
But I think the drop is a gift from the Gods for spectators seeking exposure to the king of search.
A weekly view displays the strength of Alphabet stock’s long-term trend. The many pauses and pullbacks along the way served to create multiple support zones as well as a more sustainable trend. The current retracement has ushered GOOGL to the rising 20-week moving average as well as an old resistance area.
If the principle of polarity — which states that old resistance becomes new support — holds true then this is a logical level for buyers to emerge.
Click to Enlarge
Google’s appeal grows when analyzing the daily chart. While some may find the breach of the 50-day moving average worrisome, I wouldn’t let it deter your bullish desires. We’ve seen many such drops in the past, and none of them derailed Alphabet stock’s long-term trend. What I find particularly attractive about the stock here is the oversold reading flashing in the Stochastics. A quick study of previous signals (labeled 1 to 4) reveals they all turned out to be great entry points.
Click to Enlarge
In the short run, GOOGL has formed a five day base with clear support and resistance zones to trade around. Traders desiring upside confirmation before pulling the trigger can use a pop above $1,192.
A Profit Seeking Alphabet Stock Trade
Google’s costly price tag makes it a prime candidate for option spreads. And the implied volatility is high enough to justify selling bull puts. This strategy also enables us to create a wide profit range to elevate the probability of success.
Sell the Oct $1100/$1090 bull puts for $1.20. Consider it a bet that GOOGL sits above $1,100 at expiration. The reward is limited to $120, and the risk is $880. To minimize the loss, however, you could exit on a break of the short put strike at $1,100.
As of this writing, Tyler Craig didn’t held bullish GOOGL options positions. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
