Caution: This Stock is Ready for a Brief Correction

Shares of Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), while still higher by roughly 19% for the year and remaining both intermediate- and longer-term bullish on my proprietary trend-measuring algorithm, do still look toppy in the near-term time frames.

Active investors and traders could look to capitalize on this with some well-defined trades.

When Alphabet Inc reported its latest batch of earnings on July 24, GOOGL stock dropped about 3% the following trading day in what was a gap-down move that rejected its previous all-time highs from June just north of the $1,000 mark.

Let’s gain some perspective on all of this using the charts.

To be clear, while I see GOOGL stock tactically (near-term) challenged to move much higher, I remain a staunch bull on the company and the stock price through the longer term.

As I always say in this column, a large part of successful trading and investing is being able to define and respect one’s time-frames for each trade and investment.

GOOGL Stock Charts

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

On the multiyear weekly chart, note that GOOGL stock has been tickling the upper end of the multiyear up-trending channel for the past couple of months, which is to say that it has largely treaded water all summer thus far. This is also a great example that stocks can remain in intermediate-term overbought/oversold conditions for an extended period of time.

Also note that the previous two times when GOOGL stock’s MACD oscillator momentum indicator at the bottom of the weekly chart was near current high levels, it ultimately ended up in a price correction both times.

Moving averages legend: blue – 8 day, yellow – 21 day

When I last mused about GOOGL stock on July 24 on what may be some options available to traders following the earnings report, I highlighted the near-term eight- and 21-day moving averages (blue and yellow lines on the chart respectively). Specifically I highlighted that “if the blue line crosses back below the yellow line, a short-side trade in GOOGL would set up and likely will trigger a better mean-reversion move lower into the $850-$900 area as a first downside target.”

Over the past few trading days, this moving average crossing has taken place and thus now has me eyeing a downside target in the $850-$900 area. To be clear, this does not mean the stock has to fall apart from here, it’s simply a mean-reversion move in the intermediate to longer-term time frames.

As usual, any strong bullish reversal back higher in GOOGL stock and/or the broader large-cap technology stocks would be a stop loss signal, particularly if this were to coincide with the eight-day moving average crossing back above the 21-day moving average.

— Serge Berger

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Source: Investor Place