Even after surpassing earnings estimates in late October, Alphabet (GOOG) has faced persistent pressure over the past four weeks. The Nasdaq, similarly, underperformed last month despite the broader market's bullish trend. However, this trend might be shifting.
The Invesco QQQ Trust (QQQ), which closely tracks the Nasdaq, reached a new all-time high Monday, signaling that the tech sector could be gearing up for a year-end rally. If you look at GOOG's 6-month daily chart, there are multiple indications that the stock might be getting ready to turn around.
Support/Resistance
Using the classic principles of support and resistance, it's clear that GOOG has strong long-term support around the $165 level. The price tends to gravitate toward this area, and each dip below it is swiftly met with buying pressure. This pattern is playing out once again. Additionally, the formation of higher highs and higher lows further validates this behavior.
RSI (Relative Strength Index)
The RSI, a key momentum indicator, shows signs of reversal, suggesting fading downside momentum and a potential move upward. This aligns with broader bullish technical patterns.
The Trade
"To take a bullish trade on GOOG," said Nishant Pant, "I'm using a trade structure called a 'bull call spread.' To construct my bull call spread, I need to buy a $170 call and sell a $175 call as a single unit."
If GOOG moves just a few dollars up from here and the stock price is at or above $175 by expiration, this trade will yield a 100% ROI on capital risked. With 10 contracts, this equates to risking $2500 to potentially gain $2500.
- Buy: $170 call, Dec 27th expiry
- Sell: $175 call, Dec 27th expiry
- Cost: $250
- Potential Profit: $250