Technical Analysis: Google Stock Must Not Breach This Price Point

Google Stock
credits:istock.com/SpVVK

GOOGL Stock: A Gauge for the Overall Market

The market has gone for more than three days without generating a new high and interest rates are making a move toward higher yields. All of a sudden, there is fear spewing across the investment landscape that a possible sell-off might be brewing.

I must admit, a correction is long overdue. So let me reiterate; corrections should not be feared, they should be embraced. Corrections are not bad, they serve to restore health to a bullish trend and give investors the opportunity to acquire positions in their favorite names at a discount.

A correction is not a crash. I believe that if a sell-off does take place, it will only be a correction within the context of a bullish market. I am basing this belief on the notion that I do not believe the market has yet reached a top. Also, tops take time to create and this market is still making new strides where market heavyweights like Alphabet Inc (NASDAQ: GOOGL)—also known as Google—continue to forge new all-time highs. These moves are supportive of a bull market in development and I have yet to come across any glaring signs to suggest otherwise.

Alphabet stock is actually one—if not my favorite—heavyweight name and I use it as a benchmark to gauge the overall health of the stock market. One could assume that I use Alphabet stock due to its sheer size, weight, and influence on the stock market indices. That is partly correct, but the main reason why I use Google stock is that the bullish trend embedded within this stock is as clear as day and it is all I need to determine if GOOGL stock is healthy or not.

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The following Google stock chart illustrates the bullish trend, which is clear as day.

Google Stock Chart

Chart courtesy of StockCharts.com

This Alphabet stock chart illustrates the price action since inception.

This price action depicts a beautiful bullish trend consisting of a sequence of higher highs and higher lows, which is the quintessential characteristic that defines all bullish trends. This is a very special trend that is now over 13 years in the making. Its recent ascent to new highs suggests that this trend is still in development.

The uptrend line (highlighted in blue), which was created by connecting the sequence of higher lows, not only defines this bullish trend but also acts as a significant level of price support. Refuting the significance of this uptrend line is difficult to even ponder, given that Google stock has tested it many times.

Using this trend line as a tool is quite easy and as long as GOOGL stock is trading above it, I can only assume that a bull market is still in development and, therefore, higher stock prices will prevail. I am using the uptrend line as a gauge for the health of the overall stock market, so the same notions apply.

If Google stock ever loses its footing and starts trading below this uptrend line, I would have to assume the worst, which is that GOOGL stock has finally succumbed to the bear market, which also applies to the general health of the stock market.

It is difficult to gauge where support lies on the chart I have provided, so the following Alphabet stock chart illustrates the same chart using a much smaller scale.

Google Stock Price Chart

Chart courtesy of StockCharts.com

This Google stock chart illustrates that price support currently resides at $975.00, which means Alphabet stock can drop by 17.5% and would be still within the context of a bull market defined by its bullish trend, meaning that this so-called “drop” was just a correction.

The moving average convergence/divergence (MACD) indicator, located in the lower panel, determines whether bullish or bearish momentum is influencing the price action in Google stock. The MACD indicator is currently in bullish alignment and it is suggesting that bullish momentum is influencing the price action on the GOOGL stock chart, creating a path of least resistance geared toward higher Alphabet stock prices.

The good news is that there is little to suggest that this bull market in GOOGL stock is going to end anytime soon. Any pullback should be seen in the same light as all the previous tests of the uptrend line, which were just a correction within a long-standing bull market. This bodes well for the overall health of the stock market.

Analyst Take

I am bullish on Alphabet stock because the trend toward higher Google stock prices warrants such a view. As long as GOOGL stock continues to appreciate, I have little recourse but to believe that the bull market in the stock market is ongoing.