Alphabet Inc. (GOOGL) may complete the final leg of a six-month breakout pattern that finally opens the door to $1,500 and beyond. However, committed bulls need to step up soon to ease bearish divergences that have undermined many of big tech's recent rallies to new highs. That will take a lot of firepower in the form of high-volume buying days that have been absent in the broader tape for many months.

A narrow selection of tech leaders that include Facebook, Inc. (FB) and Netflix, Inc. (NLFX) have consumed the bulk of 2018 buying power so far while Alphabet stock has struggled since topping out near $1,200 in late January. The company's high capital spending guidance has been blamed for weak price action, with major business lines expected to generate lower second half profits due to margin compression. (See also: Alphabet's Stock May Soon Break Out to Record High.)

GOOGL Long-Term Chart (2004 – 2018)

 

The stock came public at a split-adjusted $42.50 in August 2004 and turned higher one month later, entering a strong uptrend that stalled at $100 in November 2004. It consolidated gains for six months and broke out once again, carving a powerful trend advance that nearly quadrupled the stock's price into the November 2017 top at $373.62. The subsequent pullback accelerated during the 2008 economic collapse, giving up three years of returns before bottoming out at $123.

A bounce into the new decade eased into range-bound action that completed a broad ascending triangle breakout in 2012. It reached 2007 resistance just two months later and broke out once again, lifting into a series of higher highs and higher lows into the first quarter of 2014 when buying power fizzled out above $600. A selling wave into 2015 carved the first leg of a rising wedge (red lines) that has held price within relatively narrow boundaries for the past four years.

The uptrend escalated at the start of 2018, posting an all-time high at $1,198 a few weeks later and rolling over with the broad market. March and May tests at wedge support found willing buyers, while the upturn into July stalled about 100 points under wedge resistance. The monthly stochastic oscillator entered a sell cycle in February 2018, reaching the oversold level and crossing into a buy cycle in June. This bodes well for higher prices in the coming months.

GOOGL Short-Term Chart (2017 – 2018)

 

A Fibonacci grid stretched across the rally wave into 2018 organizes choppy price action, highlighting repeated testing at the .618 rally retracement level near the psychological $1,000 level. The triple bottom into May could now form the cup of a cup and handle breakout pattern, with the handle still under formation at the 50-day exponential moving average (EMA). A rally back to $1,200 will complete this bullish formation, setting the stage for a rally that faces a major barrier at wedge resistance.

The cup's 214-point depth generates a measured move target at $1,412, or about 110 points higher than wedge resistance. In turn, that suggests a rally that quickly reaches resistance and eases into a shallow trajectory, eventually reaching the price target. A 100- to 200-point advance on a $1,200 stock doesn't generate superior reward:risk, but it's possible that the uptick will finally break the stubborn wedge and head for a much higher target.

On-balance volume (OBV) argues for caution, unlike the bullish cup and handle pattern. It topped out in March 2018 and entered a distribution wave that reached seven-month support (red line) about two weeks ago. Rally days will require higher-than-average buying volume to overcome this bearish divergence, characterized by a string of big green volume bars. That may have to wait until the company's July 23 earnings report. (For more, see: Alphabet Shows ABC's of Buying at 200-Day Moving Average.)

The Bottom Line

Alphabet may complete a cup and handle pattern and break out, heading above $1,400, but committed buyers need to step up soon or miss a golden opportunity. (For additional reading, check out: Tech Big Shots to Beat $4 Trillion in Valuation.)

<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>

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