Mega-tech Alphabet Inc. (GOOGL) reports first quarter earnings after Monday's closing bell, following a torrid 30% bounce off December's 15-month low at $978. The stock is now trading within 15 points of 2018 resistance above $1,290 but hasn't carved a major support level off the low, exposing price action to a mid-year decline. However, the downturn is impossible to time with accuracy, suggesting a trend-following strategy if the stock breaks resistance and heads above $1,300.
The first quarter uptick stalled briefly after mixed fourth quarter results in February, with higher costs outweighing strong growth. Alphabet is pumping additional funds into YouTube in an attempt to build creative content that rivals Netflix, Inc. (NFLX) and Amazon.com, Inc.'s (AMZN) Prime. Even so, Alphabet's dependence on cyclically sensitive ad revenues has put a lid on price-to-earnings (P/E) at 29 compared to Amazon's 81 and Netflix's lofty 132.
Privacy and antitrust issues continue to plague Alphabet, forcing the internet content giant to appear at Senate oversight committees and to react to President Trump's allegations of left-wing bias. The European Union has opened three antitrust investigations since 2010 and just fined the company an additional €1.5 billion for abusive practices in the conduct of the AdSense business. Wall Street appears unconcerned by the laundry list of infractions, which have generated break-up calls.
GOOGL Long-Term Chart (2004 – 2019)
The company came public at a split-adjusted $50.01 in August 2004 and entered a strong uptrend one month later, lifting above $100 in November. That level marked resistance into an April 2005 breakout and uptrend that topped out at $374 in November 2007, ahead of a decline that found support near $200 in March 2008. The stock posted a lower high above $300 in May and turned sharply lower, dumping to a three-year low after the October crash.
It took nearly four years for the subsequent recovery wave to complete a round trip into the 2007 high, generating an immediate breakout that attracted intense buying interest. The stock topped out once again in 2014, reversing above $600 in a shallow downturn that ended near $500 in January 2015. The subsequent uptick marked the next point in a rising channel pattern that controlled price action into 2018's all-time high near $1,300.
The monthly stochastics oscillator hasn't dropped into the oversold zone since 2012, highlighting intense institutional sponsorship that contributed to the strong 2019 recovery effort. The current buy cycle still hasn't reached the overbought zone, which was last penetrated in 2017. Given the lack of reliable signals at both ends of the spectrum, it's unwise to predict a reversal until a bearish crossover, and that isn't happening right now.
GOOGL Short-Term Chart (2016 – 2019)
A Fibonacci grid stretched across the 2016 into 2018 downtrend places the December low at the 50% retracement, which marks a common reversal level. However, the unfilled April 2017 gap between $891 and $923 cuts right through the .618 retracement, adding a magnetic level that could drive future price action. A lot depends of this week's post-earnings reaction, which could yield a breakout or major reversal at resistance.
The on-balance volume (OBV) accumulation-distribution indicator tells us that bears hold the short-term cards, exhibiting less vigor than the rally into resistance. A breakout would set off a bearish divergence in this price structure, at least until OBV makes a new high. As a result, it makes sense to watch trading volumes closely if the stock stalls at resistance or presses above $1,300 after this week's news.
The Bottom Line
Alphabet stock has nearly completed a round trip into the 2018 high, but that price level will mark resistance, raising the odds for a reversal and multi-week correction.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.