Alphabet Inc. (GOOGL) stock is trading lower by about 1% on Tuesday morning after the internet giant beat third quarter revenue guidance but missed earnings per share (EPS) estimates by a wide margin. Revenues rose 20.0% year over year to $40.5 billion, highlighted by a 19% rise in advertising income on just a 1% increase in paid "clicks." The pre-market decline in the stock price did little technical damage, dropping back to Friday's closing print following Monday's 2.0% rally.
The stock has been gaining ground since hitting a five-month low in June, lifting through a trading range that has been in place for the past two years. The rally reached range resistance near $1,300 on Monday, while this morning's downtick has triggered a modest reversal. Given recent strength throughout the tech universe, it makes sense to watch price action closely in the coming sessions because a breakout to new highs is possible.
The mega cap remains vulnerable to cyclical influences, with ad revenues dependent on strong consumer buying power. However, Alphabet has diversified in recent years, and it's hard to estimate the earnings impact, if any, during the next economic downturn. Numerous initiatives, including this week's offer to buy Fitbit, Inc. (FIT) and the Stadia gaming system, highlight this constant expansion as well as the reason Alphabet now faces government anti-trust investigations.
GOOGL Long-Term Chart (2004 – 2019)
The company came public at a split-adjusted $50.01 in August 2004 and fell to an all-time low at $49.47 in September. The subsequent uptick posted a new high just two weeks later, setting off a powerful trend advance that stalled at $100 in November. It tested that level in February 2005 and turned lower, while a May breakout attempt succeeded, lifting the stock to $236 in the first quarter of 2006.
A 2007 breakout stalled at $373 a month later, marking the highest high for the next five years, ahead of a two-legged decline during the 2008 economic collapse. It found support at a four-year low in the $120s in March 2009 and turned sharply higher, but the rally stalled well below the prior peak in 2010. That level marked resistance, ahead of a 2012 breakout that reached new highs in the first quarter of 2013.
The uptrend posted dramatic gains into 2014 and eased into narrow rising channel that continued into the January 2018 high at $1,198. It sold off into April and bounced to July's high at $1,291, while a decline through the fourth quarter undercut the April low at $984, marking the first lower low since 2015. It retraced that decline and returned to range resistance in April, initiating a breakout attempt that is still in progress six months later.
The monthly stochastics oscillator hasn't crossed into the oversold zone since 2011, highlighting unusual relative strength. The last sell cycle ended in August 2019, while the current buy cycle still hasn't reached the overbought zone. In turn, this indicates that buyers could easily take control in a trend advance that targets the $1,500 level. However, the rising trendline in place since 2016 also warns that the stock could drop as low at $1,200 and not affect the long term technical outlook.
GOOGL Short-Term Chart (2017 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator posted a new high with price in July 2018 and has carved two lower highs since that time. This warns the stock will set off a bearish divergence when it rallies to a new high, with elevated risk for a failed breakout until OBV mounts the red trendline. In turn, trend followers may wish to sit on their hands during an initial breakout and let the stock build the volume support it needs for sustained upside.
The Bottom Line
Alphabet stock is trading lower after third quarter earnings, but the close proximity to range resistance predicts that the breakout crowd will be active in coming sessions.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.