Google Stock Is Broken and the Implications of This Have Just Begun

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GOOG Stock: This Is a Warning of Things to Come

My outlook for the equity markets suddenly soured in early October. There were a lot of indications that caused this, but nothing as influential as the technical damage that was sustained on the Alphabet Inc (NASDAQ:GOOG) stock chart.

I have been using the Alphabet/Google stock chart as a gauge for market health for as long as I can remember. Whenever I had any doubt regarding the stature of the equity markets, I would look to this Alphabet stock chart for direction.

Time and time again, I found comfort in this stock chart because, since the financial crisis concluded in 2009, the GOOG stock chart served to quell all my fears that a substantial sell-off in the stock market was looming.

The indication I was looking to for comfort was a simple uptrend line. This uptrend line is captured on the following chart.

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Chart courtesy of StockCharts.com

This stock chart captures an absolutely wonderful and pristine bullish trend consisting of higher highs and higher lows. This price action creates the stair-step price action that bullish trends are so famous for.

The uptrend line on the Alphabet stock chart above was created by simply connecting the series of higher lows that were responsible for creating this bullish trend.

After establishing its second point of contact in 2008, this uptrend line has been a pillar of support. It was tested many times over its 14-year life span and, as the trend began to age, the frequency of these tests continued to mount.

One thing always remained the same: GOOG stock would always find its footing on this trend line. It has never ever traded below it and, as a result, higher prices have always followed.

This inability to trade below this simple metric is why I always assumed that, as long as Google stock was trading above it, a bull market was in development.

I put so much weight on this trend line that I also used it to gauge the health of the general market. This is a lot of weight to put on the shoulders of a simple trend line, but it never steered me wrong and has always kept me on the correct path.

This is why, after seeing the technical damage that was sustained in October, when Alphabet stock broke below this uptrend line, it sent my stomach into knots. I always knew and feared that someday, this trend line would break.

Now that it has given way, this event suggests that the bullish trend that has been so kind to investors over the last 14 years has finally run its course.

Not only does it suggest that Google stock is likely to suffer further losses, but I must also assume that the major market indices are also in jeopardy of sustaining steep losses.

This is a loaded assessment, but the poor market performance over the last few weeks is a testament to this notion. Since that trend line broke, the stock price has not been the only one that has suffered; the entire market has been in turmoil.

It seems that my worst fears are now becoming a reality. This correction that has currently gripped the markets is unlike any correction we have had since the financial crisis concluded in 2009. Things are definitely different this time, which is I why I believe this is just the beginning of a very difficult market environment.

This difficult environment could easily stretch into late 2019. This is why battening down the hatches and getting defensive is the best course of action. Going forward, I would use any market strength to get out of high-flying growth names like Google.

Analyst Take

I am now bearish on GOOG stock.

The reason why I changed my view is because Alphabet stock has broken below a simple uptrend line that has defined its bull market since inception. I put such significance into this event that not only do I believe that Google stock is susceptible to further losses, but I also happen to believe that the general state of the stock market is now in jeopardy.