Last year ended on a great note, which was the exact opposite of how 2018 finished. The sentiment last year was at an extreme high going into Christmas, so equity markets finally broke out into their own new all-time highs. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) rode the way and GOOGL stock has been setting highs this week. In fact, today it’s making headlines as it joins Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) into the trillion dollar market capitalization club.
The good news is that there is no imminent sign of a giant bubble. But from these levels, stocks like GOOGL are not at an obvious entry point. This by no means is an invitation to short them, especially not going into earnings. First of all, we do not know what the companies are going to report, and more importantly, we cannot forecast how traders will react.
It’s more about expectations than quality of results.
I’m a big fan of Google, so I tend to lean bullish most times. I have been recommending it as a long all of last year, even against Wall Street consensus. Now that we are at my upside targets, I believe that there will be better entry points than current levels. If I’ve been long GOOGL stock, this is a time I lock in some profits just to be safe.
The options markets offer me ways where I don’t necessarily need to sell my shares. I can hedge my longs by selling covered calls and generate some income while I wait. Or I can temporarily protect my stock by buying puts. There are hundreds of ways investors can protect profits at all-time high levels.
Beware of the Competition to GOOGL Stock
The only serious threat to the long-term viability of the Alphabet income statement perhaps comes from Facebook (NASDAQ:FB). The reach of Facebook’s marketing machine is massive and the advertisers are getting results. So I can imagine it will severely impact Alphabet’s bottom line in the long-term. Hopefully the company’s management is doing all the right things to offset this. But so far leadership there has been lackluster. Maybe the most recent changes in the c-suite will cultivate a better impression in the next few quarters. Until then, I remain skeptical of their overall corporate strategy.
The equity markets are as bullish as they’ve ever been and we’re going into an election year. So the incumbent government will do all it can to prop up the prices.
Case in point, this week’s signing of phase 1 of the U.S.-China deal looks like an award show for movie stars. Don’t get me wrong, I was in favor of the economic war as a necessary evil, and I welcome the deal with open arms, but I think the benefit of this week’s step is over hyped. It’s not in the actual terms that are bullish but more so the stoppage of the fighting. That was one gigantic risk that held investors back in 2019.
The Experts Are Too Bullish
But now the rhetoric in the media has swung to the other extreme. We now hear experts express their opinions that there are absolutely no risks out there to break this bullish thesis. It sounds like reckless behavior and that’s when accidents happen. I am not flipping bearish yet, but the trader in me says this is where I book profits and wait for the dip to buy it. This applies to the markets in general and Alphabet.
Short term, $1,360 and $1,330 are two necklines that stick out. GOOGL stock used them as spring board for mini rallies. So it’s only natural we retest them for footing.
For a slightly long-term pivot, $1,270 is the line to watch. It has been in contention since July 2018. Clearly investors care about it and they will most likely revisit it one more time in the next few months. While this is not an imminent forecast, it is definitely a viable scenario, especially from this altitude.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
