Internet content giant Alphabet Inc. (GOOGL) is above a "golden cross" on its daily chart with a weekly chart that could end this week as an "inflating parabolic bubble." The stock is trading between its semiannual pivot at $1,250.72 and its quarterly risky level at 1,314.19, which is above the all-time intraday high at $1,291.44 set on July 27, 2018.
The stock closed Thursday, April 25, at $1,267.34, up 21.3% so far in 2019 and just 1.9% below its all-time intraday high of $1,291.44 set on July 27. The stock set its 2018 low of $977.66 on Dec. 24 and is in bull market territory up 29.6% since then.
Alphabet is set to report earnings after the close on Monday, April 29, and analysts expect the company to post earnings per share of $10.37. The stock has an elevated P/E ratio of 26.53 and does not pay a dividend, according to Macrotrends. This is a momentum stock, and its weekly stochastic reading has been on the rise since the beginning of the year.
Most analysts on Wall Street say that Alphabet will continue to show solid growth in advertising revenue. Growth should continue from YouTube and search. Alphabet is in competition with Amazon.com, Inc. (AMZN) in the growing advertising and cloud businesses. The company has attractive hardware offerings such as the Google Pixel 3 smartphone.
The daily chart for Alphabet
The daily chart for Alphabet shows a bear market decline of 24% from its all-time intraday high of $1,291.44 set on July 27 to the Dec. 24 low of $977.66. The day of the high was a negative "key reversal" that warned of the downside risk.
The stock closed 2018 at $1,044.96, which was the year-end input to my proprietary analytics. Still in play are a semiannual pivot at $1,250.72 and an annual pivot at $1,143.31. The close of $1,176.89 on March 29 was also input to my analytics and resulted in a monthly value level at $1,059.51 and quarterly risky level at $1,314.19, which would be a new all-time high.
The weekly chart for Alphabet
The weekly chart for Alphabet is positive but overbought, with the stock above its five-week modified moving average of $1,205.00. The 200-week simple moving average, or "reversion to the mean," is at $925.82. The 12 x 3 x 3 weekly slow stochastic reading rose to 89.20 this week, up from 86.05 on April 18. A move above 90.00 would make the stock an "inflating parabolic bubble."
Trading strategy: Buy Alphabet shares on weakness to the annual value level at $1,143.31 and reduce holdings on strength to the quarterly risky level at $1,314.29. A weekly close below its semiannual pivot at $1,250.72 would be a bearish warning.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.