- The conversation is finally about Alphabet’s (GOOG) earnings.
- Market health and GOOG stock price action are hinting at a bearish reaction in shares.
- Investors that are committed to riding out earnings should deploy hedged long delta strategies.
There have been more than a few mostly bad actors hanging over the stock market the past couple months. Now, though, there are earnings. And tonight, Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) helps kick off an important tech processional with GOOG stock’s first quarter (Q1) results.
Rampant inflation, jumping interest rates and an increasingly hawkish U.S. Federal Reserve policy. At-risk consumers. Supply chain disruptions. A stalling global economy. These have all proven to be bearish underpinnings for the broader market. And not altogether a surprise, a broad-based correction has been led lower by the tech-heavy and growth dependent Nasdaq.
As part of that ongoing challenge, GOOG stock has proven to be one of the Nasdaq’s key influencers, given its trillion-plus dollar weighting in the index and shares off 17% on the year. And tonight’s quarterly release, alongside Microsoft’s (NASDAQ:MSFT) earnings report, could help change the environment for the better, or make it a great deal worse.
| GOOG | Alphabet Inc. | $2,402 |
Much More Than a GOOG Stock Split
At long last Google, Alphabet, or whichever interchangeable name you associate with GOOG stock, isn’t front page news due to a much hyped 20-for-1 stock split set for Jul. 15. Investors have been hammered over the head with the split as a great buying opportunity since it was announced during January’s Q4 earnings report. It hasn’t.
In fact, the split news helped send shares up nearly 7.5% to marginal new highs before quickly proving a terrific opportunity for taking profits. Worse, GOOG stock has turned into a three month campaign of lesser trading profits and even larger losses with shares off 22% at Monday’s and 2022’s bear market low.
While some financial pundits may still make some stock split noise tonight, what really matters is earnings and guidance for GOOG stock.
In brief, consensus views are for Alphabet to deliver earnings of $25.59 per share backed by revenue growth of 23%. Sales are expected to be $68.1 billion, powered by both digital advertising and its cloud business.
Ahead of the report, Wall Street is overwhelmingly bullish on GOOG stock. Today’s median price target of $3,463 commands a premium to the market of 44%. At the same time, a CNN poll of 50 analysts reveals a very positive 42 “buy” recommendations, seven “outperform” ratings and just one “hold.”
GOOG Stock Price Chart Is Vulnerable
Wall Street may be upbeat on GOOG in front of this evening’s earnings release, but it poses a problem. A poor result, or simply one which doesn’t live up to expectations, could mean a headwind of downgrades as bullish analysts are forced to backtrack. There’s another risk brewing in Alphabet shares, as well.
If we trust the ability of a forward-looking Google price chart, this week’s newly-minted bear market could just be getting started. Technically, the weekly view reveals that despite its modestly lesser year-to-date loss versus the Nasdaq, GOOG shares are in a vulnerable position.
This week’s triggered bear market also has Alphabet’s failure of an intersecting Covid-19 uptrend and lateral price support built into this year. Coupled with a bearish weekly stochastics indicator showing no signs of reversing course, discounting or dismissing larger losses in GOOG stock could be a major mistake.
Moreover, with the first layers of Fibonacci support up to roughly 20% below today’s share price, Alphabet shares are prone to an ongoing natural stock split that could find shares challenging the $2,000 to $2,100 area sooner rather than later.
Trade Takeaway for Alphabet Stock
Earnings reactions are mostly a crapshoot trading event in my experience. But based on what we’re seeing on the price chart, analyst opinion and in the broader market, it does hint that tonight’s Google earnings report will result in an ugly outcome in the short-term. Is that really bad news, though?
If Alphabet’s growth narrative remains largely intact, shouldn’t the proposition of buying shares on weakness be a welcome event for GOOG stock investors? The answer is yes.
On a more positive note, with fear in the broader market once more at extreme readings as evidenced by the CBOE Volatility Index, there is an increased chance for a well-deserved relief rally and even the possibility to stop Alphabet’s bear in its tracks.
Pattern breakdowns like Google’s can be equally strong technical events if a nearby bullish reaction dismantles the bearish technical entry. Bearing that in mind, a rally and weekly hold above $2,525 could go a long way toward establishing a new bull market bottom in shares.
Bottom-line, I’d pass on buying Alphabet in front of earnings. But if bullish investors can’t be persuaded to step to the side, an actively-managed collar on GOOG stock or a similarly-placed vertical spread are easy and smart money choices to consider.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
