Shares of Google parent company Alphabet Inc. (GOOGL) spent half of 2017 testing psychological resistance at $1,000, finally breaking out above that magic number in October. The stock sold off to new support three times between February and May 2018, finally taking off in a healthy advance that posted an all-time high near $1,300 in July 2018. Bearish action into November triggered the fourth and fifth tests, while Monday’s reversal at $1,033 marked an astounding sixth attempt to break support.
The broad market is headed higher into mid-week, but the controversial keeper of Google, Android and Waymo isn’t out of the woods, at least not yet. Support tends to weaken through repeated breakdown attempts, eroding the shareholder base until supply exceeds demand and the level breaks in a bearish pattern failure. Given these adverse mechanics, Alphabet’s luck could run out in the coming weeks, dumping the stock into the first major downtrend since 2014.
GOOGL Long-Term Chart (2004 – 2018)
The stock came public at a split-adjusted $50.01 in August 2004 and took off just three weeks later, doubling in price in less than two months. It then settled into a less vertical uptrend, finally stalling at $237 in early 2006. A nine-month symmetrical triangle broke to the upside in October, generating healthy gains into the November 2007 top at $374, ahead of a brutal decline that ended at a three-year low in November 2008.
The deep low marked a historic buying opportunity, but it took nearly four years for the subsequent bounce to complete a 100% retracement into the 2007 high. A 2013 breakout caught fire, generating a stair-step advance that lost steam above $600 in the first quarter of 2016. It then rolled into a shallow decline, posting lower lows that held support near $500. Bulls returned in force in mid-2015, generating a high-volume breakout and channeled uptrend that doubled the stock’s price once again into July 2018.
The monthly stochastics oscillator crossed into a sell cycle in September 2018, indicating bearish control, while declining price reached channel support and the 200-day exponential moving average (EMA) a few weeks later. The stock broke down immediately, generating the first tests at $1,000 since May, while two bounces have failed to mount new resistance above $1,100. Given this bearish price structure, a weak December monthly bar would confirm the channel breakdown while raising the odds for a sell-off through the magic number.
GOOGL Short-Term Chart (2016 – 2018)
The stock broke the 200-day EMA on Oct. 9 and channel support two weeks later. Two bounces have failed at resistance, but a third effort could now be under way. Remaining bulls should stay in defensive mode, ready to dump positions unless this buying wave exceeds the Nov. 30 high at $1,135. The odds favor another failure, but this is December, and Santa Claus could come to the rescue heading into early 2019.
The on-balance volume (OBV) accumulation-distribution indicator warns that significant buying power will be needed to overcome those technical obstacles. It tested the March high in August and turned sharply lower, dropping to a 14-month low in November. Bottom fishing into December has carved a modest accumulation wave, but repeated testing at support has taken its toll, weakening institutional and retail sponsorship.
A Fibonacci grid organizes price action since the 2016 election, highlighting a sideways pattern with support at $1,000 and the 50% retracement level. A final rally that completes the right shoulder of a head and shoulders top is possible in this configuration, with the red line then marking the neckline. The .618 retracement at $950 should offer an initial target following a breakdown, but magnetism at the unfilled April 2017 gap between $890 and $920 (green lines) could stretch the decline well below $900 and into the .786 retracement level.
The Bottom Line
Alphabet stock has tested psychological support at $1,000 multiple times in 2018, eroding its shareholder base while raising the odds for an eventual breakdown.
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>