Alphabet, Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) soared 10% higher in the premarket on Wednesday to reach a new all-time high of $3,059.98 but when the market opened the stock ran into a group of sellers and profit takers, who knocked it down about 3.5% off the open.
The selling dropped Alphabet down below its previous Nov. 19 all-time high of $3,037, which will now act as a resistance zone. If Alphabet is not able to clear the zone and trade up into blue-skies after a short period of consolidation, this will cause the stock to print a bearish double top pattern at the level.
When Alphabet printed its fourth-quarter earnings on Tuesday after the closing bell, the company released important news --that it was planning a 20-1 stock split, which, if approved, will take effect on July 1. The news could potentially cause Alphabet to ignore some longer-term bearish patterns as that date nears.
Last year, Apple, Inc (NASDAQ:AAPL) and Tesla, Inc (NASDAQ:TSLA) announced stock splits and if they serve as an example of what may happen to Alphabet, a big run-up into the event may be on the horizon.
On Aug. 11, 2020 when Tesla announced a 5-1 stock split, it was trading at $1,373. From that date until the split came into effect on Aug. 31, Tesla soared up 84% higher and is currently trading 236% higher than when the announcement was made.
Apple ran about 40% higher from when it announced a 4-1 stock split on July 30, 2020, the split took effect on Aug. 31 of that year, and the stock is currently trading about 81% higher than the date of the original announcement.
See Also: Are Google Q4 Results A 'Good Indication' On What's Coming With Facebook Earnings?
The Alphabet Chart (GOOG): The massive gap up higher on Alphabet gave the first indication the long downtrend may be over because it caused the stock to print a higher high above the most recent lower high at $2,863.71. Google had been trading in a consistent downtrend since reaching its previous all-time high.
The large gap below may steer bullish traders not already in a position away from Alphabet because gaps on charts fill about 90% of the time. The gap falls between $2,764 and $2,947.36 and if the stock were to fill that area, it would represent about a 6% move to the downside.
Although Alphabet has now printed a higher high, it will eventually need to print a higher low on the daily chart, above the Jan. 24 low-of-day, in order to confirm its uptrend. Bullish traders may watch for a reversal candlestick to print such as a doji or hammer to confirm the higher low is in.
Alphabet is trading above the eight-day and 21-day exponential moving averages (EMAs) and the eight-day EMA is about to cross above the 21-day, both of which are bullish indicators. On Wednesday, the stock was able to pop up above the 50-day simple moving average as well, which indicates longer-term sentiment is now bullish.
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- Bulls want to see Alphabet trade sideways in consolidation to demonstrate stability or for the stock to drop and fill the gap, which could provide a solid entry to go long into the stock split. If either scenario plays out, the stock could be in for a blue sky run. Alphabet has resistance 2,992.10 and $3,037.
- Bears want to see big bearish volume knock Alphabet down into the gap and then for continued bearish moment to push the stock down below $2,494, which would indicate Wednesday’s move was a bull trap and the stock will continue in its downtrend. There is support below at $2,884.45 and $2,834.83.
