Alphabet Stock Crashes Into Bear Market Territory

Alphabet Inc. (GOOGL) stock set its all-time intraday high of $1,530.73 on Feb. 19 and then traded as low as $1,037.00 on March 18. This puts the stock deep into bear market territory at 30.2% below the high.

The stock fell below its annual pivot at $1,408.56 but held its semiannual and quarterly value levels at $1,314.17 and $1,297.26. Alphabet stock rebounded to its annual risky level at $1,408.56 and then crashed below all key levels and its 200-day simple moving average (SMA) now at $1,265.24. There are no other value levels. This may change in April after the close for March enters my proprietary analytics.

Alphabet beat earnings per share (EPS) estimates in three of the past four quarters, but earnings are not the focus at the moment. The adverse effects of the spreading of COVID-19 are the downside driving force. The stock is not cheap. Its P/E ratio is 21.55, and the company does not offer a dividendaccording to Macrotrends.

The daily chart for Alphabet

The daily chart for Alphabet clearly shows the ups and downs since the low posted on Dec. 24, 2018. There was a negative reaction to earnings, as shown by the price gap lower on April 30. There was a price gap higher on July 26 on a positive reaction to earnings. The earnings miss on Oct. 26 was ignored.

The down-then-up volatility resulted in the formation of a “golden cross” on Aug. 12, when the 50-day SMA rose above the 200-day SMA. This buy signal indicated that higher prices would follow, tracking Alphabet stock to its all-time intraday high of $1,530.73 on Feb. 19.

You can clearly see that the annual pivot for all of 2020 at $1,408.56 was a magnet for a few days as the semiannual and quarterly value levels held. Then the bottom fell out when the stock gapped below its 200-SMA at $1,265.25, which failed to hold in early March.

The weekly chart for Alphabet

The weekly chart for Alphabet is negative, with the stock below its five-week modified moving average at $1,303.33. Last week, the stock traded just below its 200-week SMA, or “reversion to the mean,” at $1,053.72, but it ended the week above that level. This is a buy level, but traders should use a sell stop on a gap open below this key moving average.

The 12 x 3 x 3 weekly slow stochastic reading declined to 40.03 last week. Just before setting the high, this reading was above 90.00, putting the stock in an “inflating parabolic bubble” formation. The bubble popped, and a bear market decline followed.

Trading strategy: Buy Alphabet shares on weakness if the stock trades below $1,000 per share. Reduce holdings on strength to the semiannual risky level at $1,314.17.

How to use my value levels and risky levels: Stock closing prices on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual, and annual levels remain on the charts. Each calculation uses the last nine closes on these time horizons.

Monthly levels for March were established based upon the Feb. 28 closes. New weekly levels are calculated after the end of each week. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an “inflating parabolic bubble” formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered “too cheap to ignore,” which is typically followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.