GOOGL Stock: Is an Opportunity Approaching?
The Alphabet Inc (NASDAQ:GOOGL) stock chart is under fire as the European Commission (EC) laid down the law and fined the company $2.7 billion. This fine was attributed to the fact that Alphabet used its market dominance as a search engine to dole out illegal advantages to preferred merchants and products. Aside from the fine, Google has 90 days to rectify this illegal practice. This news sent shock waves towards Google stock investors and the share price took a hit, losing 2.47% on the day.
Damning news such as this always creates some sort of reaction, and it usually takes a few days for the dust to settle in order to gauge the true nature of the news that was just shelled out. I have taken, and will continue to take, my cues from the GOOGL stock chart as an indication of whether this investment remains compelling.
This price chart contains an uptrend line that defines the entire bull market advance that began in 2004.
An uptrend line is a simple yet effective tool that is used to define a price trend. This uptrend line was created simply by connecting the significant lows that have occurred over the years. This uptrend line has a large number of contact points reinforcing the notion that this uptrend line is very significant.
The following Google stock chart illustrates the predominant long-term trend.
Chart courtesy of StockCharts.com
Using this trend line as an indicator is as simple as it was to create. As long as Alphabet stock is trading above it, I can only assume that the bull market is still in development, and therefore higher GOOGL stock prices can be expected.
This uptrend began its development in 2004 at $48.03. 13 years later, the price remains above it as Google stock is trading at $955.57, attempting to breach the $1000 barrier on a sustained basis.
The fine laid out by the EC has caused the stock price to pull back a bit, but in the context of the uptrend line, it has done no damage to the predominant trend. Therefore, the bull market that has been in development since 2004 is still intact.
But this does not mean that there are no repercussions with regards to this judgement, because this may have been the catalyst the sends Alphabet stock lower to test its uptrend line once again.
The following Google stock chart illustrates the developments on the price chart that are suggesting a pullback to test the uptrend line may be in the works.
Chart courtesy of StockCharts.com
This GOOGL stock chart illustrates that, for the last two months, a head and shoulders price pattern has potentially been in development. This price pattern contains three peaks and a neckline. The second peak is the head and it is the largest. The first and third peaks are the shoulders and they are approximately of equal size. The neckline is the horizontal trend line that needs to be breached in order to confirm the pattern.
The relative strength indicator (RSI) highlighted on the price chart above has been exhibiting a negative divergence. This divergence is made apparent as the RSI indicator failed to make a new high while the Alphabet stock price managed to do so in June. This is an indication that momentum is slowing and not confirming the advance. This divergence is supportive of the head and shoulders price pattern that is in development, and lower prices can be expected once the pattern is completed.
Not only will the completed pattern suggest that lower prices are likely to follow, but it also provides a potential price objective for that move lower. This objective is obtained by taking the depth of the head and extrapolating that value below the neckline. This creates a potential price objective of $850.00 on Google stock, which is contingent on a break below the neckline.
The 200-day simple moving average (SMA) is highlighted on the price chart because this metric is used to define the average price over the preceding 200 days in order to create a smoothed indication of the long-term predominant trend. This metric currently coincides with the uptrend line and serves to reinforce it as significant level of price support.
It is not a coincidence that the price objective suggested by the head and shoulders price pattern coincides with the levels of support outlined by the 200-day SMA and the uptrend line. This confluence of indications suggests that support is likely to be tested in the near future and could potential provide another opportunity to acquire Alphabet stock as it tests its long-term uptrend.
Bottom Line on Google Stock
The news surrounding the fine from the European Commission caused the Google stock price to drop, potentially completing a technical price pattern that, upon completion, will suggest that lower prices are likely to follow.
If this event does occur, I would be looking for GOOGL stock to find support at a long-term metric that has been supporting the advance since inception. As long as the stock price remains above this key metric, the long-term advance is still in development and higher Alphabet stock prices will likely follow.