Internet content giant Alphabet Inc. has been the least volatile of the five popular stocks called FAANG. All have lost momentum and all ended Monday in bear market territory. The others are Facebook Inc.; Amazon.com Inc.; Apple Inc.; and Netflix Inc.
Alphabet has a reasonable P/E ratio of 23.67, which is a positive for a momentum stock, but without paying a dividend, it is important for the stock to regain its lost momentum.
The first important indicator for Alphabet is to stay above the bear market threshold, which is a share price of $1,033.00. The stock closed Monday at $1,025.65, down just 2.6% year to date but in bear market territory 20.6% below the all-time intraday high of $1,291.44 set on July 27. The stock dipped into bear market territory for the first time on Oct. 29, with a low that day of $1,007.20, then bounced to my semiannual pivot at $1,101.14 between Oct. 31 and Nov. 8, then dipped to $1,002.21 on Nov. 20. Monday's dip to $1,016.63 was thus the third dip. This drop occurred after a failed test of its 200-day simple moving average at $1,129.92 on Dec. 3. This type of volatility can be traded, and I say there's another opportunity now.
A week ago, as the stock was sliding, Google's CEO Sundar Pichai testified to the House Judiciary Committee. The stock stabilized slightly as he dodged questions about political bias, Chinese issues and the privacy of user data. Stability was short-lived, and the stock fell along with the other FAANG brethren.
Longer term, Alphabet should be a winning investment. Investors like their lines of business such as Google's cloud, hardware offerings, search and YouTube. Baseball's 2019 World Series featured advertisements for the Google Pixel 3 phone, and the YouTube participation in the programming was a hit.
The Daily Chart for Alphabet
The daily chart for Alphabet shows that the momentum run began to stall as the stock set its all-time intraday high of $1,291.44 on July 27. This day ended with a warning called a "key reversal". This is defined by a close below the prior day's low after setting a new high. The first downside target was the center horizontal line at $1,101.14, which is my semiannual pivot. This level was a magnet between Oct. 10 and Dec. 4. The bottom horizontal line at $966.02 is my annual value level which has yet to be tested.
Note the second major warning. A "death cross" formed on Nov. 15 when the 50-day simple moving average fell below the 200-day simple moving average indicating that lower prices lie ahead. One strategy based on this signal is to sell strength to the 200-day SMA, which was doable at $1,129.92 on Dec. 3.
The Weekly Chart for Alphabet
The weekly chart for Alphabet is negative, with the stock below its five-week modified moving average of $1,073.14. The 12x3x3 weekly slow stochastic reading is projected to decline to 24.69 this week from 26.93 on Dec. 14.
Given these charts and analysis, investors should buy weakness to the bear market threshold of $1,033.00, then to my annual value level of $966.02 and reduce holdings on strength to my semiannual pivot at $1,101.14 and to the 200-day SMA at $1,127.40.