America’s attempt at restarting its economy has hit a bump in the road. But I suggest that investors don’t get too frustrated in this post-novel-coronvirus world and consider shorting Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Let’s examine why a shorter-term, risk-adjusted bearish position in GOOG stock is an increasingly sensible trade in today’s market.
Last week was a poor one for the stock market. Much of the blame was directed at the persistent and alarming trend in the number of new coronavirus cases across the United States. Wall Street’s anxiety was compounded by Covid-19 hot spots tied to areas with more aggressive business re-openings. The fact that some cities and states took decisive steps backwards and even closed their “open for business” doors altogether added to the pain.
The rude awakening of an extended first wave, let alone second wave of the virus was enough to rattle risk-assets across the board. And leadership since the March bottom proved of little benefit for the tech-heavy Nasdaq Composite. The bellwether fell 1.90% for the five-day period, but saw heavier selling pressure at the close of the week with Friday’s drop of 2.59%.
For investors seeking safe havens, even the Nasdaq’s crown capitalization jewels coined “MAGA” by POTUS back in February as the market hit all-time-highs, offered little respite.
The stock-based alternative acronym to “Make America Great Again,” includes Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Google and Amazon (NASDAQ:AMZN). No doubt, each of the four are awesome companies. But during Friday’s broader carnage, none proved immune to the selloff. Still, GOOG stock is seeing an extra layer of challenges in today’s market.
Maybe not entirely surprising, ad revenue dollars for Alphabet were already expected to drop in 2020 despite a growing digital ad market. Now though, those challenges are being potentially compounded by an advertiser backlash against social media channels that have profited from hate speech and disinformation.
Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) have been the primary targets of the trending “#StopHateForProfit” campaign. The movement has been growing strongly and found a growing number of larger advertisers pull their spending in response. In Friday’s session, Verizon (NYSE:VZ) announced a spending freeze that sent shares of those companies reeling.
But the hatred from investors didn’t end there. Shares of Alphabet were hit hard, dropping by 5.65%.This wasn’t too far behind TWTR’s drop of 7.4% and the 8.2% shellacking in FB shares.
While not targeted by Verizon or the stop hate movement, with Coca-Cola’s (NYSE:KO) decision Friday evening to pull advertising from all social media platforms globally and Starbucks (NASDAQ:SBUX) announcing a similar move, a bearish-looking Alphabet price chart appears to having growing ammunition in the near-term.
GOOG Stock Weekly Price Chart
Source: Charts by TradingView
Despite today’s concerns, I’m a huge fan of Alphabet’s services. In particular, I couldn’t get through a day without multiple Google searches, Google Maps and YouTube. As an investment though, the price chart is warning to hold off on any purchases. And for those comfortable shorting stocks, the evidence strongly supports bearish exposure in anticipation of lower prices in the near term.
Technically, this past week allowed GOOG stock to form a bearish engulfing candlestick topping pattern. It follows, for all intents and purposes, filling February’s bearish price gap. The weekly price action also put together a lower-high formation relative to Alphabet’s February all-time-high. But that’s not all that’s playing into the hands of Alphabet bears right now.
The stock’s corrective trend-line failure in March, relative weakness versus its technology peers throughout 2020’s runs and bearish overbought stochastics crossover, further support conditions ripe for meaningful downside pressure before a bottom comes into play.
Following this past spring’s violent, but short-lived bear market and an equally amazing rally, now is not the time to be dismissive of GOOG stock’s price chart, which hints strongly at further weakness and quite possibly another meaningful bearish cycle.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.