Alphabet (GOOGL) endured a slower start to the year than its mega-cap tech peers. But its rally began to take hold in March.

By the time it peaked in June, it had rallied over 50% from its January low – including a 20% burst in May alone.

However, when we checked it out on June 13 (red arrow in the chart below), I warned that GOOGL’s rally was losing momentum.

Since then, GOOGL has drifted lower. That’s compounded by recent news of the Nasdaq’s rebalance, which will reduce GOOGL’s weighting in the index.

So today, I want to check on GOOGL’s slide and see what we can expect from here…

Peaked and Retraced

After a brutal 12-month sell-off, GOOGL’s downtrend fizzled out late in 2022.

GOOGL began to rally in January with the Relative Strength Index (RSI) showing an upswing in buying momentum.

But as the chart below shows, that promising move soon reversed.

Google’s rally finally got underway when it rallied off a base from its higher low in March (‘A’).

Alphabet (GOOGL)

Source: eSignal

That rally from March coincided with the RSI breaking through resistance (green line) and gaining traction in the upper half of its band (red circle).

And that is where the RSI has remained until recently…

The other thing you’ll notice is the action of our two Moving Averages (MAs).

The 10-day MA (red line) crossing above the 50-day MA (blue line) confirmed GOOGL’s March rally, with both MAs then tracking higher.

You can gauge the strength of GOOGL’s rally by how quickly the 10-day MA began to move further above the 50-day MA throughout May.

However, that strong momentum pushed the RSI well into overbought territory (upper grey dashed line).

GOOGL then peaked and retraced along with a common reversal pattern…

At the same time that GOOGL was making higher highs (upper red line), the RSI was making lower highs (lower red line).

Take another look:

Alphabet (GOOGL)

Source: eSignal

When momentum is steadily falling like this, the stock price will eventually fall too.

Since then, GOOGL has drifted lower. And the RSI fell back through support for the first time since early March.

So what am I looking for from here?

Developing Down Move

The RSI retested and failed to break through resistance earlier this month. Now it has resumed tracking lower (orange circle) in the bottom half of its range.

The longer the RSI tracks in this lower band, the bigger GOOGL’s fall could be.

For GOOGL to resume its rally, the RSI will have to break back through resistance and regain its position in the upper half of its band.

Likewise, we’ll pay attention to our two MAs…

GOOGL recently closed below its 50-day MA.

If the 10-day MA crosses and accelerates below the 50-day MA, then that will add further weight to GOOGL’s developing down move.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

Mailbag

S&P traders are up over $14,000 just by selling one contract on each trade (if they sold more than one contract, they’ve had the chance to make even more). One reader wrote in with his experience:

Greetings Larry: First and foremost, I would like to thank you and your staff for all your hard work on behalf of your clients. I sincerely appreciate it.

Secondly, I have finally learned how to use your techniques for trading vertical option spreads on the SPX. The past five weeks have been a phenomenal success for me. I have learned as you pointed out early in the game to put a P in the ledger as opposed to an L.

As a result of sticking to your S&P trading technique, I have been able to make up nearly all the losses I incurred during the learning curve where I thought I was doing the smart trades.

I look forward to long and prosperous trading with my lifetime membership with your firm.

– Frank B.

To learn more about spread trading with The S&P Trader, simply go right here.