Alphabet Inc. topped $600 billion market capitalization, after its stock closed at a new all-time high of $888.84 per share yesterday. This, plus the fact that it is a great, highly profitable company, could easily tempt investors to jump on board, hoping that the best is yet to come. For the business, this is probably true, but the market is not always rational and the weekly price chart of GOOGL stock seems to be flashing a warning sign.
The weekly chart of GOOGL stock visualizes the entire uptrend since the low near $124 a share in November, 2008. According to the Elliott Wave Principle, trends take the shape of a five-wave pattern, called an impulse. Once the pattern ends, a three-wave correction interrupts the trend. As you can see, GOOGL stock’s progress during the last eight and a half years looks like a complete impulsive sequence with an extended third wave and an ending diagonal in wave (5). If this count is correct, wave IV to the south should begin very soon. In addition, the relative strength index shows a double bearish divergence between the last three major highs. In fact, the indicator started diverging back in February, 2014, when Alphabet’s stock price was hovering around $600 a share. Three years and almost $300 per share to the north later, GOOGL stock’s trend seems more exhausted than ever.
However, this is not a sell recommendation. The trend is still up and picking tops is among the riskiest things one could do. On the other hand, we believe it is too late to buy either. Fourth waves usually retrace back to the support area of the previous fourth wave. In this case, GOOGL stock could be expected to decline back to $700 from now on.
UPDATE: May 3rd, 2017
On April 27th, Alphabet posted better-than-expected results for the first quarter of 2017, sending GOOGL stock to $943 by May 2nd. Let’s see how this changes the big picture Elliott Wave outlook.
Since the upper line of the assumed ending diagonal in wave (5) has been significantly broken, the bearish reversal in wave IV has been postponed. Now, it looks like wave (5) is going to develop as a regular five-wave impulse. This means the stock has all chances to climb to the $1000 mark from now on.
GOOGL stock demonstrated exactly why we should always wait for a confirmation, especially when it comes to ending diagonals. In that case, the lower line of the pattern was never breached, which is why selling right away was not recommended.
So, despite the fact that another $50+ have been added to the price of GOOGL shares, wave (5) of III is still in its final stages and it is still too late to buy. Thus, from an investing perspective, the outlook has not changed very dramatically. In our opinion, the stock remains a temptation to resist.
Of course, when analyzing a particular stock, you have to take a look at it from all angles. Value Stock Invest provides fundamental analysis of Alphabet Inc.