This Is Why Google Stock Remains a Proxy for Market Health

Google stock
iStock.com/rvolkan

Google Stock: This One Trend Line Says it All

The markets have just forged new all-time highs. In this process, the current bull market is now the longest on record.

This is great news, but I have some concerns. The markets are entering that time of year where financial storms have a tendency to make landfall. The reason why is that September and October are seasonally the worst-performing months of the year.

There is currently a trade war being waged between the United States and the rest of the world. Unfortunately, this trade war doesn’t look like it is going to abate anytime soon. If anything, the trade war is escalating as it has become a tit-for-tat affair with each side hellbent on making the last move.

Never in history have I come across a trade was that ended in any type of positive outcome. So this storm that is brewing has merit. It is wise to pay attention, even if the markets continue to dismiss its implications.

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This is why I am returning to focus on Alphabet Inc (NASDAQ:GOOG) stock. I use this company’s stock chart as a gauge to measure the market’s health. The reason why is that Google stock has been trading above a significant level of price support since the company first began trading in August 2004.

As long at GOOG stock remains above it, I can only assume that the general health of the market is in check. Therefore, I can assume that a bull market in stocks is still in development.

This significant level of price support is highlighted on the following Alphabet stock chart.

Chart courtesy of StockCharts.com

The significant level of price support I am referring to is a simple technical tool known as an uptrend line, which is highlighted on the above chart.

This uptrend line captures a bullish trend that has been in development since GOOG stock first began trading in August 2004. This trend features the quintessential characteristic that defines all bullish trends, which is price action consisting of higher highs and higher lows.

This bullish trend has been responsible for taking the stock from a low of $50.05 to $1,254, where it currently stands. This move produces an inspiring 2,505% return since its inception.

The uptrend line is a very significant price metric. Aside from just capturing the bullish trend, it pinpoints where price support resides.

This level of support has been tested a number of times over the years. Google stock’s inability to trade below it is a testament to its significance. These tests have become more frequent over the years as this bullish trend has been aging. The sheer fact that the stock continues to find its footing on this metric is both impressive and significant.

This is why I continue to believe that as long as Alphabet stock is trading above this uptrend line, the bullish trend that began in August 2004 is intact and still in development.

This uptrend line is so influential that if the stock ever started trading below it, it would not only suggest that the bullish trend has run its course, but I would have to believe that the overall health of the market has come into question. That, of course, would suggest that the bull market in stocks has likely come to an end.

At this moment, support outlined by the uptrend currently resides at $1,100, which suggests that GOOG stock can correct by 12.3% and still not put this metric in any danger. This suggests that the health of the market is currently in check and that a bull market remains in development.

Analyst Take

The uptrend line annotated on the Alphabet stock chart is my gauge for the health of the stock market.

As long as Google stock is trading above this metric, I will continue to believe that a bull market in GOOG stock is in development and the general state of the stock market is in check.