Alphabet (NASDAQ:GOOGL, GOOG) Hasn’t had what you could call a banner year. Goog stock has given back all of its year-over-year gains, but when other companies are doing so much worse, it’s a bit of a bright stop.
Large-cap tech stocks have shielded shareholders from the brunt of the pain being doled out this year. The so-called FAANG gang have enjoyed rapid-fire recoveries while many small-cap stocks continue to struggle.
Again, Alphabet hasn’t zipped to new record highs like Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX), it is holding its own ahead of next week’s earnings report. Today we’re taking a fresh look at GOOG stock and offering up two trade ideas for bulls.
You can see the widening gap between tech behemoths and small caps by comparing the Nasdaq-100 and Russell 2000. Consider the following overlay of the PowerShares QQQ Trust (NASDAQ:QQQ) in candlestick form and the iShares Russell 2000 Index (NYSEARCA:IWM) as a line chart.
I was surprised to discover they’ve actually been tracking each other quite well since rebounding off the March lows. QQQ is up 28%, while IWM is up 26%. But it’s the distance from their respective 52-week highs that makes the big difference.
Tech stocks have aggressively clawed their way back and only need to rally another 13% to get back to their peak. In contrast, IWM needs to run another 41% before returning to its January high.
GOOG Stock Charts
The almost $300 rise off its lows has carried Alphabet shares half-way back to their peak. Fibonacci lovers call this a 50% retracement, and it places GOOG in the dead center of its 2020 range.
It also brings what has been a key price zone into play. Over the prior two years, the $1,275 to $1,300 area acted as a significant resistance area. Breaking above it last year marked a decisive victory for bulls and cleared the stock for a ramp to $1,530.
Unfortunately, this old resistance area failed to become support during last month’s crash, and now GOOG finds itself bumping up against the underside of the zone.
We need to push above it before bull trades have a green light. The RSI indicator also needs a boost before returning to the bull zone. It’s perched at 48 and needs to run above 50 before momentum weighs in favor of long trades.
The daily chart reveals the strides GOOG stock has made during its recovery in greater detail.
Alphabet’s rise has been strong enough to turn the 20-day moving average higher, and we now have a series of higher pivot highs and lows. Additionally, the RSI pushed north of 50, officially returning it to bull territory.
The past two weeks of consolidation created a high base pattern that breakout traders are eyeing with interest. Watch for a breach of $1,300 to confirm the next advance is beginning.
Earnings Expectations
Alphabet will deliver its latest earnings numbers after the bell Tuesday, April 28. The report should be the catalyst finally pushing GOOG stock out of its trading range. Options are currently pricing in a move of $81 or 6.4% by next Friday. The lion’s share of the shift will likely arrive overnight from Tuesday to Wednesday as traders react to the quarterly report.
Guessing the direction of the earnings gap is always a coin flip, but if you’re willing to lean into the event, here are two trade ideas – one for bulls and one for bears.
Bulls: Since an $81 move would take GOOG stock up to $1,341, let’s build an out-of-the-money bull call spread near that area. Buy the June $1330/$1340 bull call spread for around $3.85. The risk is limited to your initial $3.85 cost, and the reward is $6.15.
Bears: If you think the gap will be lower, then buy the June $1190/$1180 bear put spread for around $2.70. The risk is limited to the initial $2.70, and the cost is $7.30.
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