Prepare and Profit from the Coming Google Stock Breakout

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The sky-high correlation among mega-cap tech stocks has broken down over recent weeks. While Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN) have been stuck in the mud well off their highs, Alphabet (NASDAQ:GOOGL, GOOG) has been quietly basing near its peak. And that makes Google stock interesting from a price perspective.

Source: rvlsoft /

Today we’re breaking down the relative strength and identifying the best way to capitalize on the king of search running into next month’s earnings report. First, let’s consider the broader market backdrop that could sway Google stock in the short run.

Bitcoin Bites It

Monday’s crash in bitcoin was emblematic of a broader narrative that saw the register ringing across risk assets. Of course, the difference was that while bitcoin swooned over 20% at its lows, most stock indexes fell less than 1%. Tech stocks bore the brunt of the damage, with the Nasdaq sliding 1.45%.

With the tech sector falling (momentarily) out of favor, Alphabet’s breakout over $1,800 has been put on hiatus. But I’m keeping my hopes alive for a few reasons.

First, the Nasdaq weakness is so far a one-day wonder. Its uptrend remains firmly intact, making this selling sortie nothing more than a well-deserved retracement. Second, though cryptocurrencies and some other risk-on assets shared the decline, small-caps closed nearly green on the session.

The drop, then, was rotational in nature. And if we’ve learned anything over the past year, it’s that corrections of this nature are ephemeral.

With that context in place, let’s take a deeper dive into the price chart of Google stock.

Google Stock Chart

As usual, I’m starting with the weekly chart to capture the big picture. Longer-term trends trump short-term ones, so it pays to know what’s on the weekly before analyzing the daily.

Source: The thinkorswim® platform from TD Ameritrade

As with the entire market, Google has been steadily moving higher over the past five years (and longer). A few corrections struck along the way, but nothing was substantial enough to reverse its forward progress permanently. Last year ended with a 32% gain that had prices perched well above all major moving averages.

Since November, the stock has been in a narrow band of consolidation. Spectators have been waiting for buyers to end the stalemate, but it hasn’t happened yet. Watch $1,800 closely. That’s the top end of the range and needs to be breached before bullish trades are attractive.

The daily view provides more detail but varies little from the broad strokes seen on the weekly chart. The 20-day moving average has been treading water for over a month now, and we’re starting to probe below the 50-day. Last Friday’s ramp carried prices to the doorstep of a breakout, but buyers couldn’t seal the deal. This pattern may require patience, but I’d rather wait for the stock to clear resistance and show its momentum than get suckered in now and have to wait for weeks while it waffles in the range.

Source: The thinkorswim® platform from TD Ameritrade

Bull Calls on the Breakout

As with any stock carrying a nearly-$2,000 price tag, Google stock options are expensive. That makes long calls impossible for all but those swinging huge trading accounts. Instead, I suggest the bull call spread. You can control the cost by widening or shrinking the spread width. My default structure will be a $20-wide position because that’s the narrowest spread width currently available.

I’ll emphasize the trigger once more here. Enter the trade only if prices push past $1,800.

The Trade: Buy the March $1,820/$1,840 call vertical spread. The cost should be around $9 to $10 at the trigger point.

On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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