When is the Best Time to Buy Alphabet Shares?
Benjamin Tay, Senior Dealer
Benjamin graduated from the State University of New York at Buffalo with a Bachelor’s degree in Business Administration. He believes that a strong foundation is absolutely necessary to succeed in the financial markets.
Therefore, he enjoys sharing his knowledge and experience to help others succeed. In his free time, he enjoys reading books on business, fish keeping and spending time with his family.
Timing is everything, especially when it comes to investing or trading. As Alphabet Inc. (NASDAQ: GOOGL) continues to defy market trends, investors are asking one crucial question: ‘When is the best time to buy Alphabet shares?’ With unprecedented resilience amidst market volatility, and a staggering range of innovations in Artificial Intelligence (AI) and cloud technologies, Alphabet isn’t just any stock; it is a treasure chest of opportunities. Let’s take a look at how you can gain a strategic edge by understanding the intricacies of Alphabet’s share performance and how to time your investment.
Following a surge in AI stock prices earlier this year, many have subsequently lost momentum. Specifically, the share price of C3.ai (NYSE: AI) has plummeted by more than 50%, while Advanced Micro Devices’ (NASDAQ: AMD) share price has slid by 28%.
Source: freepik.com
In stark contrast stands Alphabet (NASDAQ: GOOGL).
Alphabet’s share price has not only fully recovered from the crash in June but continues to outshine its industry counterparts.
Although Alphabet recently experienced a 7% dip in share value, this was largely in response to the hawkish comments by Jerome Powell, the Federal Reserve Chair. However, there is minimal cause for concern. The broader U.S. stock market was similarly impacted, with numerous stocks declining even more significantly.
Why Should You Consider Investing in Alphabet Shares?
Source: freepik.com
As a holding company, Alphabet presides over an extensive portfolio of technology companies, the largest and most influential being Google.
Boasting more than 100 products and services, a handful of the companies form an integral part of our lives, such as AdSense, Android, Chrome, Drive, Gmail, Google Pay, Waze and YouTube.
Similar to other technology giants, Alphabet’s products and services are widely used and form an integral part of our daily lives.
So, why focus on Alphabet?
Reason 1: Google Cloud’s Exceptional AI Capabilities
Source: freepik.com
One of the most critical businesses under Alphabet is Google Cloud.
Google Cloud’s infrastructure is optimised for generative AI models that are being used to transform businesses worldwide. To give a sense of the magnitude of its impact in the field of AI:
- More than 70% of generative AI unicorns rely on Google Cloud’s service.
- Google Cloud provides the widest range of AI supercomputer options, enabling customers to achieve price-performance metrics that are twice as advantageous as its competitors.
Furthermore, Google’s AI capabilities are being utilised by niches including cybersecurity, customer service, marketing, and even the prevention of financial crimes.
Reason 2: High Sensitivity to Market Movements
Source: freepik.com
According to tradingview.com, beta “is a measure of a stock’s or portfolio’s sensitivity to changes in the overall market”.
When the value of beta is 1, the stock tends to move in line with the market.
When the value of beta is greater than 1, the stock tends to move more compared to the market.
Alphabet shares (NASDAQ: GOOGL) have a beta value of 1.25.
With a beta value of 1.25, the share price of Alphabet is also likely to move 25% more than the market in a bull run, and perform 25% worse than the market in a bearish environment.
This is excellent as we are still in a bull run, and Alphabet shares are likely to bring you an outsized return if the market continues to rise.
Reason 3: Bullish Window
Stocks tend to rise from October to December.
However, the rise will be unequal, depending on their beta values and macroeconomic factors.
The bar chart above shows the change in Alphabet share price from October to December each year, beginning in 2005.
The Alphabet share price has risen 12 times out of 18 in this time period and the average rise is 18.8%.
In the same time period, the Alphabet share price has declined 6 times out of 18, with a decline of an average of 10.9%.
What insights can be drawn from these observations?
The historical performance of Alphabet’s share price from October to December suggests a bullish trend. Utilising a long trading strategy during this period could significantly increase your chances to become profitable. Therefore, you will want to be ready and be on the lookout for short-term buying opportunities.
When is the Best Time to Buy Alphabet Shares?
“But, there are about 60 trading days from October to December. How do I know when is the best time to buy its shares?”
Enter technical analysis.
Source: freepik.com
Technical analysis is the study of the price chart of an asset in search of patterns that can help forecast potential future price movements.
A variety of technical analysis tools are often utilised to achieve this. Common technical analysis tools include support and resistance, trendlines, and indicators such as Relative Strength Index (RSI), and Moving Averages.
So, how many of these technical analysis tools should there be in your arsenal?
The age-old saying of “too many cooks spoil the broth” holds true. Instead of bringing you greater clarity, you will be left with more questions if you use too many tools for your analysis, mainly because different tools can sometimes provide contradictory signals.
Here are the 4 free technical analysis tools at your disposal:
- Support and resistance
- Trendlines
- Average True Range (ATR) indicator
- Relative Strength Index (RSI) indicator
A Framework to Determine the Best Time to Buy Alphabet Shares
By combining the 4 technical analysis tools with sentiment analysis, you can employ an effective and structured approach known as STARS.
Source: freepik.com
STARS is the acronym for:
- Support and resistance
- Trendlines
- Average True Range (ATR) indicator
- Relative Strength Index (RSI) indicator
- Sentiment
As we are looking for upcoming potential buying opportunities, we should be focusing on the most recent price data.
Source: tradingview.com
Tool 1: Support and Resistance
Support and resistance are price areas where the price of any asset is likely to bounce. Take for example the price area of US$126.70 which has been marked out in the chart below.
Source: tradingview.com
That price area (marked out in an orange box) served as a resistance zone from May to July 2023.
Conversely, the same price area (marked out in blue boxes) functioned as a support zone in August 2023 and in September 2023.
Tool 2: Trendlines
Trendlines serve as diagonal support and resistance zones where the price of any asset is likely to reverse its direction.
Can you see how a trendline is a diagonal support and resistance zone from the chart below?
Source: tradingview.com
Let’s have a look at the middle trendline.
It acted as a resistance zone from March to April 2023 and from June to July 2023, as depicted by the orange boxes.
The middle trendline turned into a support zone in August 2023, as marked out by the blue box.
At the time of writing on 28 September 2023, Alphabet’s (NASDAQ: GOOGL) share price has just rebounded from its support zone at around US$126.70 and its lowest trendline.
Tool 3: Average True Range (ATR) Indicator
Have you ever placed a stop loss, only to be stopped out just moments before the price moved in your favour?
You could have pocketed a healthy profit instead of suffering a loss due to a bad placement of your stop loss.
The Average True Range (ATR) indicator offers a snapshot of an asset’s volatility. This indicator is usually represented as a maroon line at the bottom of the chart.
The ATR indicator helps to determine an optimal price area to place your stop loss at, thus reducing the likelihood of you from suffering a loss prematurely.
A stop-loss helps to mitigate your financial risk. By employing a stop-loss, there’s a pre-set amount you are willing to lose, keeping the other part of your trading capital intact to seize other opportunities.
An optimal strategy using the ATR indicator would be to place your stop-loss level a multiple of 2.5 or greater from the current price of the asset.
Tool 4: Relative Strength Index (RSI) Indicator
This indicator shows the momentum of the asset, helping you to uncover if the market participants are in sync with you, improving your chance of success.
There are 2 key values to consider:
- 30 and below
- 70 and above
When the value of the RSI is 30 or below, the indicator suggests that asset is oversold. This signifies that the decline in the asset’s price is about to end (at least for a short while).
The opposite is true when the value of the RSI is 70 or higher as this suggests that the asset may be overbought, and its bullish ascent is about to end, at least for a short while.
How can You Read the Market Sentiment?
Market sentiment can be inferred by examining the size and colours of the candles in the recent past.
If the market is optimistic on the asset, you will see more green candles than red in the recent months.
When you see many large green candles, you can infer that the market is very optimistic about the asset. On the other hand, when you see many short green candles, you can infer that the market is just slightly optimistic, or even uncertain.
Application of the STARS Framework
Source: tradingview.com
The STARS framework can be readily applied to Alphabet’s (NASDAQ: GOOGL) chart as depicted above.
Currently, Alphabet’s share price is in between its support and resistance zones, and lowest and middle trendlines. Given this scenario, the best thing to do is wait for its share price to come back to its lowest trendline. This is also known as a ‘bank-side fishing’ strategy for stock selection.
Knowing the bullish momentum is returning (from the rising value of the RSI indicator), we can anticipate that Alphabet share price will continue to head slightly higher before returning to test its lowest trendline. With this anticipation, we have identified a potential entry price at its lowest trendline.
Using a multiple of 3 of the ATR’s current value, we can derive a stop loss level of US$122, as indicated by the red line on the chart. You are free to consider a different value rather than 3.
With your stop-loss in place, it’s time to determine a desired selling point for Alphabet shares (NASDAQ: GOOGL).
Zooming out, you can see that there is a strong resistance area at around US$144, as depicted by the green line. That’s where we would place the take-profit order. You may choose a higher take profit level too!
Source: tradingview.com
Now, all you are left with is reading the sentiment of the market participants on Alphabet shares (NASDAQ: GOOGL).
In the past few months, there have been more green candles than red candles on the price chart of Alphabet. The green candles are also larger than the red candles overall. Therefore, you can safely predict that its shares are likely to continue rising till the end of the year.
Armed with this analysis, do you think that this is the best time to buy shares of Alphabet?
Do you want to learn more about Alphabet(NASDAQ: GOOGL)?
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References
Source:
[1] Freepik.com
[2] Tradingview.com
[3] Seeking Alpha: https://seekingalpha.com/article/4619735-alphabet-inc-goog-q2-2023-earnings-call-transcript?hasComeFromMpArticle=true
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