The tech-heavy Nasdaq-100 has lifted to a bull market and all-time high, joining the S&P 500, the Dow Industrial Average and Russell-2000 in a trend advance driven by expectations for higher growth and profits in the Trump administration. But the nation’s biggest tech giants still face political and economic headwinds, with the surging U.S. Dollar making it harder to sell their products overseas while Silicon Valley’s lopsided support for Hilary Clinton during the election has built an uncomfortable wall between CEOs and the President-elect.

 

Alphabet Inc. (GOOGL) faces complex challenges in 2017, with more than 75% of the world’s internet surfers using their ad-supported search engine in November. Search-based advertising drove the bulk of $75-billion in 2015 revenues, illustrating the outsized impact to the company’s bottom line. Profits and revenues could erode if the dollar continues to post new highs, making local alternatives more affordable, while trade and political tensions also weigh on their torrid growth rate.

 

The company holds a nearly 9% weighting in the Nasdaq-100 through two stock classes, telling market players the index will probably head in whatever direction those shares trade in 2017. As a result, current technical positioning may be instructive in predicting big tech timing and direction in coming months. In particular, a breakout from GOOGL’s broad trading range could signal the start of a high percentage index rally above 5,000.

 

GOOGL Long-term Chart (2004-2016)

GOOGL

The company came public near $50 in August 2004 (post a two-for-one split into multiple share classes) and shot higher immediately, benefiting from the mid-decade bull market. The uptrend topped out at $373 in November 2007 and rolled over in a decline that accelerated to the downside during the 2008 economic collapse. It turned higher in 2009 but the bounce stalled at the .786 Fibonacci selloff retracement level one year later, requiring another 2-and-a-half years to complete a round trip to the prior high.

 

It broke out in 2012, entering a powerful trend advance that ran into resistance at the psychological 800 level in December 2015. The stock tested that level twice in February 2016 and sold off to an 8-month low during the Brexit referendum. Price action since that time carved an August rally into range resistance and an October breakout that failed after the presidential election.  

 

GOOGL Short-Term Chart (2014–2016)

GOOGL

 

The daily view highlights a series of rally stairsteps and successful tests at new support, in line with a secular uptrend driven by institutional buying power. The stock settled on top of the October 2015 rally gap into the August 2016 breakout attempt, which reached a nominal all-time high at $839 before rolling over in late October and reentering the prior range in a failure swing.

 

It tested range resistance after the election and sold off to the 200-day EMA, which cut through the range midpoint. A double bottom reversal attracted strong interest that’s lifted the stock back above the contested level. In turn, smart traders will now focus downside attention on $790, which needs to hold on a test to favor a trip back to the October high. Conversely, a rally above the red line at $840 will confirm the breakout and set the stage for a more vertical advance in coming months.

 

On Balance Volume (OBV) matched price action until August 2016, posting a series of new highs, but ground out a lower high when the stock posted a higher October high, signaling a bearish divergence that tracked mixed price action into December. The indicator continues to lag the current rally wave, holding well below the 2016 peak even though the price is trading less than 4% below the all-time high.

The Bottom Line

Alphabet broke out to a new high in October, but momentum failed to develop, triggering a failed breakout and an additional trend building into December. It needs to clear $840 to enter a more vertical uptrend, but that may be tough until the stock finds a larger supply of committed buyers. Hopefully, the flip of the calendar into January will do the trick, with a strong uptrend in this single iconic issue having the power to lift the Nasdaq-100 index into a fresh round of all-time highs.

 

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