Trading Google (GOOG) Stock in a Tech Downturn

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Google, Apple, Facebook, and other major tech stocks endured a horrendous week recently. The selloff in tech stocks was long overdue according to several analysts, but many speculators continue to remain skeptical of current valuations. Alphabet Inc. (GOOG) is currently trading at $939.78 per share (June 18, 2017).





This major tech stock is a big player on the NASDAQ, with a market capitalization of $663.84 billion, and a price/earnings ratio of 32.11. The 1-year target estimate price for GOOG is $1017.63 per share, a premium of $67 on the current price. The tech slide that hit Wall Street recently appears to be in the rearview mirror – but traders remain dubious.




Technical Indicators Remain Strongly Positive

The 5-day performance of the NASDAQ composite index reflects a decline of 1.12% from a level of approximately 6,284 towards its current level of 6220.88. While everybody is hopeful that the tech selloff is over, concerns remain. A market correction is characterized by a decline of approximately 20% in stock prices. The recent selloff was nowhere near that level. Instead, what we are seeing taking place with tech stocks is traders buying on the dip.

In other words, the brief selloff brought additional buyers into the mix to prop up this ever-inflating tech stock bubble. There is plenty of juice left in tech stocks, and traders are building on inflated foundations, seeing how high this tower can go. Unfortunately, the jury is out on whether the foundation of the tech Leviathan is fundamentally sound.

The Trend is Your Friend

Instead of characterizing the recent downturn as a correction, it should be categorized as a pullback. This is commonplace in financial markets, and does not alter the trajectory of tech stocks like Google. Consider the above graphic which indicates that despite the sharp downturn, the price of GOOG remains well above its 200-day moving average of $823.41 per share. Another way to gauge the current trend is by looking at the short-term moving average – the 50-day MA. Currently, the 50-day moving average is $908.22 per share. This is clearly illustrated in the upward trajectory of Google stock.

A contrarian perspective on the tech ‘bailout’ was presented by a Saxon Trade options expert, Elias Moneymaker: ‘It’s not so much that investors do not see value in tech stocks anymore, they are diversifying their portfolios to include additional sectors of the market in the form of banking and financial stocks, safe-haven investments like gold and mutual funds.’

A look at the fundamentals of Alphabet Inc. (GOOG) confirms how bullish investors really feel. For example, the number of Thomson Reuters analysts opting for a buy rating on Google has steadily increased since March 2017. On a rating scale of 1.00 through 5.0, this stock is firmly positioned at 1.8. This indicates a strong buy rating.

Watch out for FANG stocks

While there have been some earnings misses of late, GOOG has generally performed well. In Q2 2016, the stock generated actual earnings of $8.42, with estimated earnings of $8.03. By Q3 2016, actual earnings of $9.06 were generated, while estimates forecast $8.64 per share. In Q4 2016, GOOG disappointed with actual earnings of $9.36 and estimated earnings of $9.67.

Fast-forward to Q1 2017, and Alphabet Inc. exceeded expectations. This time, actual earnings of $7.73 were reported with estimates at $7.39. Q2 2017 earnings estimates are forecast at $8.22 per share. It is worth mentioning that there is tremendous interest in FANG stocks. These stocks include Facebook, Amazon, Netflix, and Google. These juggernauts of the tech world dominate bourses and they are watched by millions of investors worldwide.

It is worth pointing out that any adverse trading activity on these stocks has market-moving potential – so you should keep your eyes on them.

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