Google Big Earnings Pop (Technical Analysis)

Summary:

• Alphabet (GOOGL) saw a 5.8% after-market pop post-earnings, challenging our SID Sell signal driven by technical and fundamental analysis.
• Positive signals before earnings included strong Demand on the 20-day chart and a Buy signal in the SAR column, indicating smart money activity.
• Despite the earnings bounce, our SID signal remains Sell due to a price drop testing the 200-day uptrend, requiring further good news for a Buy signal.
• Both Seeking Alpha and Wall St. analysts rate GOOGL a Buy, reinforcing the strong fundamental story despite potential antitrust concerns.

Alphabet (NASDAQ:GOOGL) earnings squeezed the shorts and there was a 5.8% pop up in the after market. As you can see on our Sector report, where stocks are listed best to worst, according to our Stocks In Demand score in the SID column, GOOGL has a Sell signal that attracted the shorts. Now we have to see if this earnings bounce can change our most important SID Sell signal.

As you can see on our Sector report below, we did have a couple of positive signals going into earnings. You can see positive Demand on the 20-day bar chart and a positive D number in the D:S column which measures Demand and Supply. In addition, in the Stop And Reverse, SAR column you can see a “B” for Buy signal. Obviously, some shorts were covering before earnings, some smart money.

Here is our Sector Report showing the signals discussed above in the SID, D:S, SAR columns and in the 20-day bar chart for Demand and Supply.

Next we want to look at the weekly chart. You can see that the Demand before earnings triggered our vertical, blue line, technical Buy Signal on the chart. However, notice that at the top of the chart it has not yet changed our SID Sell signal. Unlike the other purely technical signals on the chart, our SID signal also uses fundamentals and typically lags the purely technical signals. In other words, if the smart money knows something about improving fundamentals that is not known yet by the market (such as good earnings) we will see that smart money buying on the chart before our fundamental indicators change with widely known fundamental improvement.

Here is our weekly chart with our vertical, blue line Buy signal well before the good earnings report. If you want to know what the smart money is doing before earnings, you have to use technical signals shown on this chart.

We do our due diligence on all the above sigals by going to Seeking Alpha’s analyst ratings and Quant ratings. Both the SA analysts and those on Wall St. rate GOOGL a Buy. The SA Quant rating is a strong Buy. All these ratings are based on fundamentals so we know the fundamental story is good.

Our SID score uses technicals and fundamentals, so we know it is the big drop down in price to test the 200-day uptrend, that has caused our SID score to be a Sell score. You can see our SID score is overweighted for technicals.

Normally with this profile, fundamental analysts would be pounding the table to buy on weakness, unless the market is discounting some factor, like an antitrust breakup, that is not reflected in the fundamentals because it has not happened yet. The positive earnings report and price pop are not affected by possible legal problems, and so we have this bounce from deeply oversold and successfully testing the 200-day uptrend. It is the first attempt to change our SID signal back to a Buy. At the top of the chart you can see the bad news took our SID score down from a Buy Signal to a Sell Signal. Now GOOGL needs some good news to take our SID signal back to a Buy Signal.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in GOOGL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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