Warning: Don’t Buy This Popular Stock Now

Shares of heavyweight tech stocks like Alphabet Inc (NASDAQ:GOOGL), Apple Inc. (NASDAQ:AAPL) and Amazon.com, Inc. (NASDAQ:AMZN) are all notably lower following their earnings announcements last week.

And while I ultimately want to buy these stocks again, right now, it looks like further downside its possible. GOOGL stock in particular has a well-defined next downside target.

Last week on Oct. 27, before Alphabet was scheduled to report earnings, I wrote in this column that the stock is likely overbought and that both a post-earnings rally or pop-and-drop would be an opportunity to take profits or play the short side for a trade.

Since then, GOOGL stock has fallen about 6% and still feels heavy.

That’s because it now sits on a multi-month level of technical support — one that you should pay attention to.

As I discussed last week, large-cap tech stocks and a few more of their peers were largely responsible for holding up the S&P 500 and broader U.S. stock market. As these stocks began to sway and stumble over the past few trading sessions, so too did the S&P 500.

As such, Alphabet stock and their peers should be closely watched — not just for a gauge on the single names, but for clues to where the broader market is going next. After all, their combined weighting in the S&P 500 is meaningful.

GOOGL Stock Charts
On the multiyear weekly chart of Alphabet stock, we see that as shares rallied toward the upper end of their multiyear range into last week’s earnings report, they did so on weak upside momentum. By the time earnings came out last week, the MACD momentum oscillator had put in a lower high versus the 2015 momentum highs, while price had pushed to a marginal new high.

More often than not in these types of situations, momentum gives us the truer reading. In this case, price ultimately will have to come back down again before better buying opportunities may be considered.

As a result of the weak post-earnings reaction, GOOGL stock has now retraced back into the middle part of the multiyear uptrending channel, where the risk-to-reward scenario is too weak to justify buying right now.

If history is any guidance, Alphabet will be a better buy again near the lower end of this range, which would be around the $740-$760 area.

On the daily chart, we see that the 6% selloff in Google stock following the earnings announcement has retraced shares back to a previous area of horizontal resistance (now support since early August) around the $790 area.

While the stock may be immediate-term oversold, the still-unfilled up-gap from July 29 (blue box) lurks just below this price level. This gap fills around the $760 area, which also lines up with the upper end of the aforementioned multiyear uptrend line.

Traders that took advantage of the post-earnings pop-and-drop in GOOGL stock can now look to take full or partial profits.

Let’s see if the stock can slide somewhat further into that $740-$760 area before a better bullish reversal rears its head.

— Serge Berger

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Source: Investor Place