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Asset Watch
Thursday, September 12, 2024
With heightened volatility creating large intraday swings in stock prices, little has been done to alleviate weak seasonality, investors’ recession fears, or the impact the U.S. presidential cycle could have on future economic growth. As a result, caution remains prudent until clarity prevails.
However, with Alphabet suffering more than its Big Tech peers, could a short-term rally be on the horizon?
Supporting the recent sell-off, Alphabet faces allegations of unfair search practices, leading to two court proceedings that could result in the potential divestment of certain assets. Macquarie described the Department of Justice (DOJ) probe as the “trial of the century” that “gets surprisingly little attention.”
These issues have eroded investors’ appetite for Alphabet.
While the fundamental catalysts are different this time, the technical setup is eerily similar. The upward-sloping white line highlights how Alphabet rallied near trendline support on Sep. 9, as the stock hit a low near $147.
The bounce also occurred with its daily RSI (the blue line at the bottom) falling below 30, which has typically marked the end of corrections.
The white arrows show how the last two times Alphabet reached trendline support with an RSI near or below 30, meaningful rallies followed. Therefore, while bearish S&P 500 seasonality remains a headwind for Alphabet, the short-term risk-reward may be skewed in the bulls’ favour.
To play for a bounce and manage risk, pay close attention to the $147 area. If Alphabet can hold trendline support during the next daily S&P 500 decline, the potential relative strength could signal a lasting bottom.
For more aggressive traders, it may be appropriate to enter a position immediately, place a stop-loss order slightly below trendline support, and exit at the first sign of stress.
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