This Is WHY Google Stock Is a Surrogate Indicator for Market Health

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GOOGL Stock: As Goes Google, so Does the Market

If I had to use one word to describe this market, it would be bipolar, and the reason is quite simple. Ever since late January, the market has been experiencing wild swings in both directions and the trading action has become quite manic. This is, of course, unnerving price action, and I am sure that many investors are starting to wonder if this price action is signalling that this is the beginning of worse to come.

I wish I had a crystal ball so I could answer this question with some sort of certainly, but since I do not, I have to use the next best thing, which is the Alphabet Inc (NASDAQ:GOOGL) stock chart. There is an embedded uptrend line on the Google stock chart, which I use as a proxy for the health of the stock market. It has not failed me yet.

This embedded uptrend line is highlighted on the following GOOGL stock chart.

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Chart courtesy of StockCharts.com

This Alphabet stock chart illustrates a bullish trend that has been in development since Google stock first began in 2004.

The bullish trend contains the quintessential characteristic that defines all bullish trends, which is price action that contains a series of higher highs and higher lows, which resembles a staircase.

Connecting the higher lows that characterize this bullish trend is responsible for creating the uptrend line I am referring to, which is highlighted in blue on the GOOGL stock chart.

The uptrend line that has been in development since 2004 has been tested a number of times. Each and every time the uptrend line was tested, Alphabet stock bounced off of it, which is a testament to its significance. I am using the uptrend line as a line in the sand, and as long as GOOGL stock is trading above it, I can only assume that its bull market is still in development and that higher GOOGL stock prices will prevail over time.

The significance of this uptrend line is magnified because I also use it as a gauge to determine if the stock market is still geared toward higher prices. Google stock has never traded below this uptrend line, and if it were to lose its footing and trade below it, I would have to assume that the bull market in all equities has concluded and that the bear market has awoken from its slumber.

The recent volatility in the market has caused Google stock and the market indexes to sell off. As a result, a test of this embedded uptrend line is fast approaching.

In order to see where the support currently resides, a closer look at the uptrend line is warranted, and the following Alphabet stock chart accomplishes this task.

Chart courtesy of StockCharts.com

This Google stock chart illustrates that the uptrend line currently resides at $980.00, which is approximately 4.53% lower from current prices. This is the price point that Alphabet stock needs to maintain.

I have added the 200-day moving average to the Google stock chart because it is a very significant and influential price metric.

The 200-day moving average is like the uptrend line in that it acts like a dividing line that separates bullish investments from bearish ones. A stock trading above it is bullish, while one trading below it is bearish.

It is very common for this moving average to act as a level of price support, and the sell-off that began in late January is a testament to this notion. During that sell-off, GOOGL stock traded down and tested this moving average from above. It bounced right off of it and a rally ensued.

This rally didn’t last long, and in mid-March, another sell-off gripped the markets. Currently, Alphabet stock, which is my proxy for the market, is once again testing the 200-day moving average. So wouldn’t it be appropriate that a major market index was doing the same?

It just so happens that the S&P 500 is testing its 200-day moving average, and the following price chart illustrates this notion.

Chart courtesy of StockCharts.com

The S&P 500 index is highlighted on the chart above, and this index compromises of 500 of the largest companies by market cap. The sell-off that has recently plagued the market has caused this index to test its 200-day moving average.

The first time the 200-day moving average was tested was in February, which coincided with Alphabet stock testing its 200-day moving average. Both of these instruments bounced off this level, and they are both testing the 200-day moving average once again. This alone proves that using GOOGL stock is a very good proxy for the market because the price action is almost identical.

Analyst Take

I am watching the Alphabet stock chart because I use it as a proxy for the health of the general market. Google stock is currently testing support outlined by the 200-day moving average, and just beneath that, there is an extremely significant level of price support outlined by an uptrend line. If GOOGL stock would ever fall below this uptrend line, I would have reason to believe that the general health of the market has come into question and that a bear market has begun.