Alphabet’s Chart Has a ‘Baby Death Cross.’ What That Might Mean

16. Aug.

Alphabet GOOGL GOOG has been mostly falling since reporting Q2 earnings on July 23. What does technical analysis say about where the stock could go from here?

First, some background. Alphabet reported its Q2 results after the market closed on July 23, beating analyst estimates for both revenues and earnings.

Revenues grew 13.6% year over year to $84.7 billion, with Google Cloud contributing more than $10 billion for the first time ever.

So far, so good -– but there was a catch. Alphabet spent more on AI infrastructure than expected, as had many other members of the so-called "Magnificent Seven."

And while CFO Ruth Porat did speak about solid Q2 margins during Alphabet’s earnings call, she then cautioned that “in the third quarter, operating margins will reflect the impact of both the increases in depreciation and expenses associated with the higher levels of investment in our technical infrastructure, as well as the increase in cost of revenues due to the pull-forward of hardware launches into Q3."

That's when things got rough for GOOGL shares. The stock had already been mired in a bit of a sell-off for a couple of weeks before the numbers came out, but investors and traders got nervous.

Shares fell 5% the day after the earnings release and are still down more than 10% as I write this from where Alphabet closed prior to the results’ release.

Let’s look at GOOGL’s chart to see where the stock might go from here.

Readers will see that this chart shows two back-to-back technical patterns that worked out as they should have, at least in theory:



From October 2023 into very early 2024, GOOGL built a so-called “ascending triangle,” which is a bullish pattern. The stock then proceeded to rally from February into July.

However, in doing so, Alphabet then developed what's known as a “rising wedge” pattern -- which historically points to a bearish reversal.

Once the bough on this pattern broke, GOOGL gave up its 21-day Exponential Moving Average, or “EMA” (denoted by the green line above) and its 50-Day Simple Moving Average, or “SMA” (the blue line above). Then the stock headed straight for its 200-Day SMA (marked by the red line above). That's where Alphabet found support -- at least for the moment.

Next, let's zoom in on the here and now:



This chart shows GOOGL as of Tuesday’s close, with the stock in a technically weak position.

Although the shares have been rebounding for about a week, the 21-day EMA (the green line above) has crossed below the 50-Day SMA (the blue line) in what is sometimes referred to as a “swing trader's cross” or “baby death cross.”

Meanwhile, Alphabet's Relative Strength Index, or “RSI” (denoted by the gray line above) sits at 39 in the chart above. That’s on the soft side, but at least it’s out of technically oversold territory, which would require a sub-30 reading.

At the bottom of the chart above, daily Moving Average Convergence/Divergence (MACD) shows that a histogram of Alphabet’s 9-Day EMA (the blue bars above) sits below zero. That's bearish.

In addition, the 12-day EMA (the black line above) remains below the 26-day EMA (the gold line). That’s normally bearish, but it does look like the black line is curling towards the gold line. A crossover there would be bullish.

The bottom line? Alphabet’s upside pivot point now will likely be at its 50-Day SMA, which was at $176.33 in the chart above. A take and hold of that line would likely permit some portfolio managers to increase exposure.

Conversely, the stock’s downside pivot remains at the 200-Day SMA ($153.95 in the chart above). A loss of that line could force some risk managers to pressure portfolio managers to reduce their long-side exposure.

And of course, the 200-day line, as one might surmise, carries more weight than the 50-day line in terms of exposure-size allocation.

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