Google Stock Bounces Off Support and the Implications Are Widespread

Google Stock
iStock.com/AndreyPopov

Google Stock Chart Indications Suggest That a Bottom Is Near

Volatility is the order of the day, and wild swings have become the norm. What a change from the tranquil environment that dominated the trading action all of last year. The current wild trading environment has struck fear in hearts of investors, and many are pondering whether this is perhaps the beginning of something ominous or just a much-needed correction.

I am in the calm and collected camp, and this is because I have seen such price action before. I have learned over the years, and on many similar occasions, that emotion should never play into any good trading strategy. Putting emotion aside, I have reason to believe that this recent slide is just a much-needed, overdue correction.

This view is based on a number of indications, and I am going to justify my stance by beginning with the stock that I use as my benchmark for the indices, which is Alphabet Inc (NASDAQ:GOOG) stock, otherwise known as Google stock.

There are probably a number of reasons why Alphabet stock can be used as a benchmark, but I use it specifically for its price chart, which means my reasoning is technical in nature and, therefore, it is completely predicated on the stock chart.

The following stock chart highlights an uptrend line that spans the entire chart, illustrating that a bullish trend in Alphabet stock has been in development since inception.

GOOG stock chart

Chart courtesy of StockCharts.com

This bullish trend, and many others like it, contain the quintessential characteristic that defines all bullish trends, a sequence of higher highs and higher lows. It’s responsible for creating a stair-step price pattern that moves the stock price from the lower left to upper right of the Alphabet stock chart.

The uptrend line was created by connecting this sequence of lower lows, and this trend line is very, very important. Google stock has never traded below that trend line, but the stock has tested it on a number of occasions. That line acts like a very significant level of price support; as long as GOOG stock is trading above that level, Google’s bull market is still in development and higher prices will prevail.

The recent sell-off in the markets caused GOOG stock to sell off, and it has found support where it was expected to, right on the uptrend line. This level of support coincided with a significant level of price support that the S&P 500 index had just hit as well.

The following S&P 500 stock chart illustrates that, as Google stock was hitting support, so was this index.

S&P 500 stock chart

Chart courtesy of StockCharts.com

The above chart illustrates the benchmark S&P 500 index, which is made up of the largest 500 companies by market cap. The recent fear-induced slide in the stock market has caused this index to test its 200-day moving average.

The 200-day moving average is a popular metric, and it is used as a dividing line that separates bullish investments from bearish ones. Trading above it is a bullish indication and trading below it is a bearish one.

The S&P 500 index just bounced off the 200-day moving average, maintaining its bullish posturing. Given its weight, this is a significant feat. The 200-day moving average was being tested at the same time that Google stock was testing its uptrend line, reinforcing the notion that GOOG stock, as I believe it, is a good benchmark for the stock market.

The defining factor contributing to my belief that the current sell-off is just a correction, and not something more ominous, is that the Volatility Index (VIX)—what some refer to as the “fear index” or the “fear gauge”—has just reached a level that, on average, suggests that the move toward lower prices has run its course and that a bottom is near.

The VIX measures the 30-day implied volatility on the S&P 500. High volatility suggests that fear has gripped the markets, while low volatility suggests that the markets are calm and rational.

The following VIX price chart illustrates the level that was just attained, and its implications on the S&P 500.

VIX price chart

Chart courtesy of StockCharts.com

This VIX price chart illustrates that, since the last financial crisis, there have been three instances when the VIX has traded north of 40 and, each time, the S&P 500 bottomed shortly afterwards and a higher price prevailed.

The VIX can go higher than 40, which occurred in both 2008 and 1987, but that would suggest that the markets are in free fall and crashing, and I do not believe that such a scenario is currently set to play out. Instead, I believe that this indication, among others, is suggesting that a bottom is being forged and that a move toward higher prices is on the horizon.

Analyst Take

Alphabet stock has just tested an uptrend line that has been in development since inception. This event occurred at the same time that the S&P 500 tested its 200-day moving average and the VIX traded north of 40. All of these indications suggest that the sell-off has likely turned its course, and that it’s only a matter of time before higher equity and Google stock prices prevail.