The share price of Alphabet Inc. ( GOOGL) was sharply lower as markets opened Monday morning, as traders and investors react to media reports of network issues, a Department of Justice probe, and perhaps other fears. GOOGL's charts and technical indicators weakened significantly in the past month and this could be the start of a bigger decline in the weeks and months ahead.
Let's check the charts before being tempted to make a trade.
In this daily bar chart of GOOGL, below, we can see a peak in late July and then a retest of that zenith in late April. The December/April rally stopped abruptly with a large downside price gap and very heavy trading volume. GOOGL gapped below the rising 50-day moving average line and it has continued to decline and it is now below the declining 200-day moving average line. The slope of the 50-day line has turned negative.
The daily On-Balance-Volume (OBV) line shows a decline the past four weeks telling us that sellers of GOOGL have become more aggressive with heavier volume being transacted on days when GOOGL has closed lower.
In the bottom pattern we can see a small bullish divergence from the 12-day price momentum study. This is a leading indicator that tells us that the decline has slowed but it does not give clear buy signals.
In this weekly bar chart of GOOGL, below, we can see that prices roughly doubled from the middle of 2016 to the twin peaks in 2018 and 2019.
Prices are now below the declining 40-week moving average line and the pattern since the middle of 2018 looks like a potential double top formation. A weekly close below $980 - the December nadir - would complete the pattern and suggest a significant decline in the months ahead.
The weekly OBV line is weakening and the Moving Average Convergence Divergence (MACD) oscillator has crossed to the downside from above the zero line for a take profits sell signal.
In this Point and Figure chart of GOOGL, below, we can see the recent decline without a price gap. A possible downside price target of $946 is being projected and that would mean the December 2018 low would be broken.
Bottom line strategy: From the low of 2009, traders have been conditioned to "buy the dip" but I think the market has made an important turn and a durable price low may not be seen until the fourth quarter. I plan to keep with my strategy of buying strength, especially with GOOGL.
(Alphabet is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells GOOGL? Learn more now.)
