GOOGL Stock: My Market Thermometer
The prospects of a trade war and the impact of higher interest rates may be factors that would cause some investor to take a step back from their current investments. In reality, who can blame them? 2018 has not been a walk in the park by any means. The first half of the year has been plagued with wild market swings and elevated levels of volatility, making for a turbulent market environment.
During this turmoil, I kept a cool head, being inclined to look past the selling pressure. I never have any good reason to believe that the market weakening that characterized the first half of 2018 was anything but a much-needed correction.
One of the indications I look at to determine the overall health of the market is Alphabet Inc (NASDAQ:GOOGL). During the first part of the year, GOOGL stock was tested during these turbulent market conditions. It held price support exactly where and when it needed to, never suggesting that the weakness was anything more than a much-needed correction.
This level of price support that I am referring to is highlighted on the following Alphabet stock chart:
Chart courtesy of StockCharts.com
The level of price support I’m referring to is a simple technical tool known as an uptrend line. The line captures a bullish trend that has been in development since GOOGL stock first began trading in August 2004. This trend features the quintessential characteristic that defines all bullish trends: price action consisting of higher highs and higher lows.
As a result, Google stock has gone from a low of $50.05 to $1,197.50, where it currently stands. If you’re wondering, this represents an awe-inspiring 2,292.61% return since its inception.
The uptrend line is very significant; aside from capturing the bullish trend, it acts as a very significant level of price support.
This level of support has been tested a number of times over the years, and the longer the bullish trend has been in development, the more frequent the tests have become. It is extremely impressive that Alphabet stock has never traded below this level.
The number of times it has been tested—and GOOGL stock’s inability to trade below it—is a testament to its importance. Which is why I believe that as long as the stock is trading above this uptrend line, I can only assume that the bullish trend that began in March 2004 is intact and still in development.
This uptrend line is so influential that if GOOGL stock ever started trading below it, it would not only suggest that that the bullish trend has halted, but I would have to believe that the overall bull market in equities has also come to an end.
Luckily, it is not trading below the uptrend line, and instead has just completed a technical price pattern. That reinforces the notion that higher Alphabet stock prices are likely to prevail.
This completed price pattern is highlighted on the chart below:
Chart courtesy of StockCharts.com
The completed technical price pattern highlighted above is a descending channel, a price pattern characterized by a series of lower highs and lower lows. This series created the peaks and troughs used to capture this pattern using two downward-sloping trend lines.
These trend lines not only capture the pattern, but also define where significant levels of price resistance and support reside. This is important information because as long as GOOGL stock was contained within these trend lines, the pattern was still in development.
In order to complete the pattern, the stock needed to break above resistance, which is exactly what happened on June 18, 2018. It suggests that higher Google stock prices are likely to follow.
My long-standing bullish view on Alphabet stock is intact. The completion of the descending channel and Alphabet stock’s positioning above the uptrend line are why I continue to believe that higher GOOGL stock prices will prevail, which bodes extremely well for the prospects of the overall stock market.
This uptrend line is my gauge for the health of the markets, and as long as Alphabet Inc is above it, I will believe that a bull market in equities is still in development.