GOOG Stock: This Barometer for Market Health Suggests That Trouble Lies Ahead
The stock market is in peril, and October is proving once again why it is one of the worst-performing months of the year. Seeking shelter has become an increasingly difficult task as both stocks and bonds are selling off in tandem. Even the juggernaut, Alphabet Inc (NASDAQ:GOOG) stock, has not been spared, which is not good news because I use the Google stock chart as a barometer to gauge the health of the overall market.
The following GOOG stock chart illustrates why I have been using the Alphabet stock chart as a barometer for the stock market’s health.
Chart courtesy of StockCharts.com
This Google stock chart captures a bullish trend that has been in development since the stock first began trading in August 2004.
The uptrend line drawn on the Alphabet stock chart was created by connecting the series of higher lows that depicted this bullish trend. Not only does this trend capture the bullish trend, it also pinpoints where price support resides.
The information provided by the uptrend line is of the utmost importance because Google stock has never traded below it. This trend line has been tested countless times over the years. These tests have become more frequent as this bullish trend has been aging. The sheer fact that GOOG stock continued to find its footing on this metric was a testament to its significance.
I have been using this uptrend line as a gauge of market health because I believed that as long as GOOG stock was trading above it, a bull market was in development. I placed so much emphasis on it that I always said if Google stock ever lost its footing and started trading below it, not only would it suggest that the bullish trend in Google stock had run its course, but I would have to believe that the overall health of the market had also come into question.
Here lies the problem: the recent bout of selling has done a considerable amount of technical damage to the Alphabet stock chart. This technical damage is suggesting that this sell-off may be the beginning of something a lot worse.
The following GOOG stock chart takes a closer look at this uptrend line and the technical damage it has sustained.
Chart courtesy of StockCharts.com
The recent round of selling pressure has caused Google stock to break down below price support outlined by the uptrend line. The uptrend line also coincided with a break below the 200-day moving average.
To quickly clarify, the 200-day moving average acts as a dividing line that separates stocks in a bullish state from stocks in a bearish state. Trading above the 200-day moving average suggests that a stock is geared toward higher prices. Trading below the 200-day moving average suggests that a stock is geared toward lower prices.
On October 10, the stock price gapped below the 200-day average, which was the same day the stock price broke below the uptrend line. In the days that followed, Alphabet stock returned to test the 200-day moving average from beneath.
This type of price action is called a backtest. Backtests serve to reaffirm that the break below the 200-day moving average was legitimate. At the same time, it establishes that price as a new level of price resistance.
This inability to regain its footing above the 200-day moving average puts Alphabet stock at risk for further downside.
Breaking below both these metrics is a very significant event. It suggests that GOOG stock is likely to correct further. It is also suggesting that the longest bull market run in history has not only come into question, but it has also likely seen its peak.
Going forward, caution is warranted.
Alphabet stock has broken below an uptrend line, suggesting that the bullish trend that GOOG stock has been in since 2005 is now in jeopardy.
I place such emphasis on this uptrend line that, not only do I believe in the implications that are directed toward Google stock, but I believe they are suggesting that the entire stock market is now at risk.