Internet content giant Alphabet Inc. (GOOGL) will report its second quarter earnings after the close on Thursday, July 25. The stock has been trading back and forth around its annual pivot at $1,143.31 since March 11. This reflects investor uncertainty regarding how to trade earnings volatility.
This concern became clear when the stock set its all-time intraday high of $1,296.97 on April 29, when the company reported first quarter earnings after the close that day. The stock gapped significantly lower on April 30, setting the stage for a bear market decline of 20.8% to its 2019 low of $1,027.03 on June 3.
Analysts expect Alphabet to post earnings per share of $11.49 when it reports results after the closing bell on Thursday, July 25. The stock has a reasonable P/E ratio of 23.20 for a FAANG stock 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 week of July 5.
Alphabet is one of the FAANG stocks mentioned in the Department of Justice investigation to examine the practices of online search, social media, and retail sales. Wall Street continues to project that Alphabet will show solid growth in advertising revenue, YouTube, and search. Alphabet is in competition with Amazon.com, Inc. (AMZN) in the growing advertising business and Google's cloud. The company also offer devices such as the Google Pixel 3 smartphone.
The stock closed Wednesday, July 24, at $1,139.73, up 9.1% year to date and up 16.6% from its Dec. 24 low of $977.66. The stock is also in correction territory at 12.1% below its all-time intraday high of $1,296.97 set on April 29.
The daily chart for Alphabet
The daily chart for Alphabet clearly shows the 20.8% crash from the April 29 high of $1,296.97 to the June 3 low of $1,027.03. The stock is up since then, but strength has failed at its annual pivot at $1,143.31, which lines up with the pivot for July at $1,143.86. There are no value levels if the stock falls below its 50-day and 200-day simple moving averages at $1,116.64 and $1,122.01, respectively. The quarterly and semiannual risky levels are $1,245.43 and $1,370.36, respectively.
The weekly chart for Alphabet
The weekly chart for Alphabet is positive, with the stock above its five-week modified moving average of $1,131.36. The 200-week simple moving average, or "reversion to the mean," is at $957.50. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 38.81 this week, up from 31.30 on July 19.
Trading strategy: Buy Alphabet stock on weakness to its 200-week simple moving average at $957.50 and reduce holdings on strength to its quarterly risky level at $1,245.43. The annual and monthly pivots are $1,143.21 and $1,143.86, respectively.
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 annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.
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.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.