Google Is Not a Buy Before July’s Stock Split

  • With Amazon's stock split out of the way, traders are now focusing on the GOOG stock split.
  • On July 15, Google's parent company, Alphabet, will issue a 20-for-1 stock split lowering its share price to around $100.
  • Investors shouldn't buy simply because of the event. Instead, they should wait for an uptrend to emerge.
GOOG stock - Google Is Not a Buy Before July’s Stock Split

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If you’re looking for clues on what Alphabet (NASDAQ:GOOG, GOOGL) will do after the July 15 stock split, heed the lessons learned from the recently completed June 6 split in Amazon (NASDAQ:AMZN).

AMZN stock rallied into the event on the back of a broad-market bounce but still tumbled 15% when the market rolled over – newly cheapened share price notwithstanding. The trend of GOOG stock matters far more than the upcoming stock split. Until we see a definitive bottom in Google stock, any rally entering or exiting the July split is suspect.

Thus, for any who care about technical analysis or the messages being broadcast on Google’s stock chart, it is not a buy until the trend changes. The stock split might be the catalyst to bring enough buyers to the yard to turn the trend. But it might not!

Rather than guessing ahead of time, do what professional traders do. Anticipate all potential scenarios and map out a plan to participate if GOOG stock finds a bottom and ends the bear market that’s been ravaging its share price for all of 2022.

Ticker Company Price
GOOGL Alphabet Class A $2,154.95
GOOG Alphabet Class C $2,167.43

GOOG Stock: Wait for This

With Friday’s plunge, GOOG stock slipped below the 20-day moving average, placing it on the south side of all major averages and 27% off the peak. Like the entirety of the tech sector, it’s mired in a bear market that’s unlikely to end until investors can sniff out an end to the inflation spiral.

By definition, a downtrend is comprised of lower pivot highs and lower pivot lows. And right now, that’s precisely what we find on Alphabet’s price chart. Say what you will about the looming split or the company’s pristine balance sheet and earnings prowess. Currently, the market doesn’t care, and until it does, I think buying Google is a low-odds bet.

Last week’s high near $2,390 marks the pivot high or resistance zone that needs to be broken for the daily trend to turn bullish. If that can happen before the split, buy the stock ahead of the event. If it doesn’t transpire until after Alphabet shares have donned their new, cheaper share price, buy it then. The critical point is that the price chart should drive your purchase, not a random stock split date.

Alphabet (GOOG) stock chart with downtrend and key resistance zone.

Source: The thinkorswim® platform from TD Ameritrade

The Three Positives of Google’s Split

Stock splits don’t magically create value for shareholders overnight. If it were that easy to manipulate prices higher, then company boards would be far more liberal with them. Berkshire Hathaway (NYSE:BRK.A,BRK.B) class A shares are the classic example of how a company doesn’t need to split its stock to drive price appreciation. At this year’s peak, the cost for a single share of Warren Buffet’s flagship was more than $544,000.

And yet, though the upcoming Google stock split won’t create an immediate change in the company’s value, it does carry a few benefits.

First up is signaling. Stock splits are a sign of growth. They signal to the marketplace that the stock has grown enough to justify a split. Of course, they also suggest the company’s captains believe more growth is on the horizon. Think of it as a revealing vote of confidence.

A second benefit is increased liquidity. Currently, GOOG stock trades around 2 million shares a day. Following the 20-for-1 split, which will reduce its share price from approximately $2,200 to $110, its average daily volume should balloon to 40 million shares. The listed options should see a similar uptick in volume, which will tighten bid-ask spreads.

The third benefit of Alphabet’s split is it will open the stock up to a new class of investors that previously felt priced out.

On the date of publication, Tyler Craig 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.

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