Key Levels for Alphabet Stock in the First Half of 2020

Shares of Alphabet Inc. (GOOGL) closed 2019 at $1,339.39 and closed Friday, Jan. 17, at $1,479.52, up 10.5% so far in 2020. The stock is in bull market territory at 51.3% above its low of $977.66 posted on Dec. 24, 2018. Alphabet stock has been setting new highs almost daily, including Friday, Jan. 17, at $1,480.55.

The stock keeps reaching new highs even though the internet content giant missed earnings per share (EPS) estimates back on Oct. 26. The stock is not cheap – its P/E ratio is 30.19, and the company does not offer a dividend, according to Macrotrends.

The bull market for Alphabet was not without interruptions. The stock fell by 17.8% from a high of $1,198.00 during the week of Feb. 2, 2018, to a low of $984.00 during the week of March 30, 2018. From its high of $1,291.44 during the week of July 27, 2018, to its low of $977.66 on Dec. 24, 2018, the stock fell 24%. From a high of $1,296.97 during the week of May 3, 2019, to the low of $1,027.03 during the week of June 7, 2019, the stock fell 20.8%.

Should Alphabet stock see a bear market correction in 2020, the downside risk would be to its 200-week simple moving average (SMA) at $1,025.64. This would equate to a decline of 30%.

The close of $1,339.39 on Dec. 31, 2019, was an important input to my proprietary analytics. The annual pivot for all of 2020 is at $1,408.56. This week's pivot is $1,472.05. The value level for the first half of 2020 is at $1,314.17. The first quarter value level is $1,297.26. The monthly value level for January is $1,259.00.

The daily chart for Alphabet

Daily chart showing the share price performance of Alphabet Inc. (GOOGL)
Refinitiv XENITH

The daily chart for Alphabet clearly shows the ups and downs since the low set on Dec. 24, 2018. There was a negative reaction to earnings, as shown by the price gap lower on April 30. There was a price gap higher on July 26 on a positive reaction to earnings. The earnings miss on Oct. 26 was ignored.

The down-then-up volatility resulted in the formation of a "golden cross" on Aug. 12, when the 50-day SMA rose above its 200-day SMA to indicate that higher prices would follow. This tracked the stock to its all-time intraday high of $1,480.56 set on Jan. 17. The stock is just above its weekly pivot at $1,472.05 and above its annual pivot at $1,408.56. Its semiannual, quarterly, and monthly value levels are $1,314.17, $1,297.26, and $1,259.00, respectively.

The weekly chart for Alphabet

Weekly chart showing the share price performance of Alphabet Inc. (GOOGL)
Refinitiv XENITH

The weekly chart for Alphabet is positive but extremely overbought, with the stock above its five-week modified moving average of $1,174.74. The 200-week SMA, or "reversion to the mean," is at $1,025.63. The stock has been above this moving average for more than five years.

The 12 x 3 x 3 weekly slow stochastic oscillator ended last week rising to 93.93, up from 92.75 on Jan. 10. This is above the 90.00 level, putting the stock in an "inflating parabolic bubble" formation.

Trading strategy: Buy Amazon shares on weakness to the annual pivot at $1,408.56 and reduce holdings on a sell stop below this week's pivot at $1,472.05.

How to use my value levels and risky levels: The closing prices of stocks on Dec. 31, 2019, were inputs to my proprietary analytics and resulted in new monthly, quarterly, semiannual, and annual levels. Each calculation uses the last nine closes in these time horizons. New weekly levels are calculated after the end of each week. New monthly levels occur after the close of each month. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

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 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. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.

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