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Stock Pick: Alphabet Inc. (Parent Company of Google)

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Alphabet Incorporated (GOOGL) is a company that needs no introduction. The multinational conglomerate was established through the corporate restructuring of Google in October 2015. With the reorganization, Alphabet has created two segments: Google and Other Bets. Google focuses on internet products such as YouTube, Search Ads, Google Play and others while Other Bets specializes in selling internet and television services. The company had a net income of $12.662 billion in 2017.

Technical Analysis of Alphabet Inc. (GOOGL)

GOOGL has been correcting after posting an all-time high of $1,291.44 in July 2018. At that price level, the stock showed signs of bullish exhaustion. First, GOOGL had five attempts to get a weekly close above $1,254. However, each one failed because the volume was anemic. In addition, a long bearish divergence was spotted on the weekly RSI. As volume and momentum faded, price eventually followed.

Nevertheless, the pullback is giving us an opportunity to buy at a firm support level.

Technical analysis shows that GOOGL is headed to meet support of $995. This support level is strong as it used to be a firm monthly resistance back in May 2017. Bulls struggled to breach this area but they finally did it in October 2017. After that, the support was retested in April 2018. The retest led to the rally to the all-time high of $1,291.44.

With the S&P showing signs of weakness, we will just play the bounce to be on the safe side. Be sure to lock in profits once targets are reached.

Fundamental Analysis of Alphabet Inc. (GOOGL)

On top of our technical analysis, fundamental analysis also supports our short-term bullish view.

The parent-company Alphabet Inc. posted its third-quarter figures recently that beat expert estimates. Experts estimated an earnings per share (EPS) of $10.54 but the stock revealed quarterly earnings of $13.06 per share. With this development, GOOGL has gone above consensus EPS three times in the last four quarters.

In addition, its trailing twelve months price-to-earnings ratio is 39.59. While the stock may look overvalued, it is actually not far from its five-year average of 34.42. If you also consider that GOOGL has a five-year maximum P/E ratio of 66.23, then it is safe to say that the stock has some upside potential in the short-term.

The strategy is to buy on dips as close to $995 as possible. As long as the stock is above this level, it has the momentum to bounce to our targets of $1,112. Take that out and there’s a possibility of revisiting resistance of $1,254.

The timeline for the target is less than six months.

Weekly GOOGL Chart

Monthly GOOGL Chart

As of this writing, the Alphabet Incorporated stock (GOOGL) is trading at $1,055.94.

Summary of Strategy

Buy: On dips as close to $995 support as possible.

Target:  $1,112 and then $1,254.

Stop: Close below $976.

 

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.8 stars on average, based on 288 rated postsKiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

Waiting for the Costco Earnings Report

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

Retail companies are among the best investment choices right before the New Year. Let’s see whether it is really true by analyzing Costco, a retail company whose Q4 earnings report is due on Dec 13.

Costco Wholesale Corporation (NASDAQ: COST) is the largest self-service warehouse chain across the globe and the fifth retail company in the US with the most sales. The company sells domestic appliances, foods, chemicals and cleaning agents, clothes, consumer electronics, etc. There is a loyalty program, and members get discounts. Among the members, around 90% are active customers. Costco is conquering the e-commerce world, too, but online sales contribute just 4% to the entire revenue, so the potential here is great.

The company buys products right from the manufacturers and sends them to warehouses, where they are sold to consumers. This saves time and money on multi-level distribution while maximizing the turnover and sales. Currently, there are 768 Costco warehouses in the world, including 533 in the US, 10 in Canada, 39 in Mexico, 28 in the UK, 26 in Japan, 15 in South Korea, 13 in Taiwan, 10 in Australia, two in Spain, and one in France and Iceland. With Costco stock being quite choppy, it has still been a safe haven for most investors, as both the stock price and the dividends have been growing steadily. Over the last 24 months, Costco was better than such competition as Target Corporation (NYSE: TGT), Kroger (NYSE: KR), and Walmart (NYSE: WMT), performing even better than S&P 500.

Costco earnings are season-based, yet its overall trend is ascending.

The debt to equity ratio is under 1.00, while the shorts are just 1.20%. Costco is interesting for investors mostly because of its dividends it’s been paying for over 15 years. In 2004, one share paid $0.10, while in 2018 it is $0.57. The share price also rose considerably, from $40 to $240, which was a great profit for long-term investors (6x+).

In November, retail sales amounted to $12.77B, which is 9.80% more than 12 months ago. The Q4 earnings report may be positive as well. Kroger (NYSE: KR), which had already reported its earnings, exceeded analysts’ expectations, which proves Costco’s report may trigger the same effect.

Fundamentally, there are no negative factors across the board, while, technically, one may want to wait for a better chance that will surely come. The report due this week is 90% likely to exceed expectations, that will push the stock upwards in the short term. However, in W1, one can see the stock has been growing abnormally since June and is well above the 200-day SMA. This is usually followed with an appropriate correction. Besides, when the stock hit $250, its volatility increased.

In terms of candlestick analysis, there are two engulfing patterns, which means the price may start falling soon. It may well test $200 and then go up again, in case there’s enough volume coming from the investors’ interest.

On D1, the stock may rise in the short term because of the good earnings report, as mentioned earlier. This is confirmed by both the support at $218 and the increase in volume. This increase, however, is becoming more and more humble over time. Thus, in case $218 gets broken out, the price may go down, which is confirmed with W1 chart. Buying COST right now expecting a good earnings report on Dec 13 is risky.

The price may rise only in case the report beats expectations, though; otherwise, the stock may fall down quickly to reach $200.

Overall, trading Costco straight away is not the best idea and will suit only those who are hunting for adrenaline. The company looks well attractive for a long-term investment next year, but waiting for a better price is the best thing you can do.

Costco is popular with hedge fund managers, too. As of late Q3, 39 hedge funds had it, including Warren Buffett’s Berkshire Hathaway, with Costco shares worth over $1B.

The P/E is 31.50, which means you will need quite a lot of time for your investment to prove profitable (Apple’s P/E, for instance, is 13.87). Thus, it’s better to wait until the hype comes down, and only then take a long position on Costco Wholesale Corporation.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held Company for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 22 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Analysis

General Motors Fires 27,000 People, Stock Jumps by 5%

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

In early November, we commented on GM, arguing that the stock may reach $40. Not much time has passed, and yet many key events occurred, which increased the volatility in General Motors’ stock. Currently, any major rise is unlikely, as Donald Trump is now taking part in this.

Until recently, things were quite in line with the technical analysis, with the stock correcting to $33.80 and then going up to reach $40.

See the prediction chart we made on Nov 2, below:

On Nov 26, however, GM announced its cost reduction campaign that included firing up to 15% of the employees and around 25% of the management, as well as closing the factories in Michigan, Maryland, and Ohio in the US, and Ontario, Canada.

This was very bad news for the families of the fired employees, but the investors liked it, which pushed the stock up by 5% within a single trading session.

This job cut is of course not in line with Trump’s policy; while the US president is trying to bring the manufacturing back to the US by cutting the tax rates, GM is closing the US based factories, while still maintaining those in Mexico and China. Trump finally said the US government might cut off the tax exemptions for GM,

And this can be well understood. This is not only about the job cut. In 2009, the US government paid $30B just to save the company, which then went public right after bankruptcy. Now, 9 years later, GM is closing its US based factories, but still maintains those in Mexico, where the local government also took part in rescuing the company.

GM reacted on the president’s words with a comment that the trade wars led by Trump made the steel and aluminum import more expensive, which meant the exported GM products were no longer as competitive as before. The major reason lies, however, in bad sales of automobiles. The Q3 earnings report was good, but not because sales were high; rather, it was because car prices went up.

By cutting production, GM is going to save up around $6B, thus doubling its investment into electric car development, including driverless ones.

The only company that wants to increase the manufacturing capacity in the US is Tesla, and, for it, the GM news is very good, as the company may buy the factories being closed and start producing Tesla cars there. This made the Tesla stock rise by over 1%. It would rise much higher in case the decision by GM was final, but it is not.

GM may still keep the US based factories, closing only those in South Korea next year. However, it remains to be seen whether economic and social pressure will get GM to reverse its decision or prolong its factories in North America.

If this is the case, it will be a win-win, as investors will get a higher stock price, the government will keep the jobs, and GM will get additional privileges.

However, GM may still close the US factories, and in this case, nothing may be predicted for sure. Trump’s policy is well unpredictable anyway, and his threats on GM losing its tax exemption privileges may come true. GM will anyways get the positive effect of the factories closing in the short term, but, in a longer term, the company’s activities in the US may suffer a lot. In this case, everything will depend on the factories in the rest of the world, where GM has better conditions.

Thus, fundamentally, the outlook is uncertain and somewhat negative. Let’s see what we can do here with some tech analysis.

Support and resistance levels are key here. The resistance at $37 formed after the earnings report and was active for around a month. Over this time, a key support appeared at $34, then other support levels formed at $35 and $36, which finally broke out the resistance at $37.

It was first broken out when the job cut news came in, but then Trump’s criticism made the price correct; still, it was soon back near $37.

Thus, the report led to a high demand for GM shares, which was followed by a consolidation, as all positions had been taken and the market needed new buyers. Nobody wanted to buy at $37, though, so the price pulled back to $34, where it actually had been before the report came out.

This motivated investors to buy at this good price, and the stock went up quickly.

While the price was going up, new support levels were being formed, which could signal an uptrend. A new support was formed at around $35, which means the investors were no longer expecting any major pullbacks.

When the news on GM job cut came out, new buyers jumped in, which pushed the stock over $38. Those who were late to buy were waiting for a pullback to buy at a better price, which formed another support at $36. The price then went up to $37, where it is currently now.

All this means is that investors have been adding long positions in GM over the last two months, the short float is very low, just 1.99%.

A large amount of longs has a drawback: in case most investors decide to quit, this will lead to a sharp decline. Thus, it is important to find the expected exit point.

In order to find it, one should determine when the stock became popular. This can be easily found at the moment when the earnings report came in.

This particular price level, $33, is a good stop loss; right here, the investors may stop expecting the price to rise and start closing their positions.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 22 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Analysis

DHI: Let Us Trust the Technical Analysis

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

With the market being a bit overheated, it needs a good correction, after which prices will become attractive for investors, who are taking profits on good company reports. The news overall is still positive, and in this situation, only inexperienced traders are ready to buy securities at maximum prices and outweigh possible drawdowns that can last more than a year.

In this regard, let’s take a stock much dependent on technical analysis, with fundamentals not being that important.

Even in the face of a declining market, there are stocks that could be bought, provided that they are not at their historical highs.

From the point of view of technical analysis, DR Horton, Inc. (NYSE: DHI) is a good option.

DR Horton, Inc. is a US state-owned housing company registered in Delaware, which forms part of the S&P500 Index. In 2017, the company was recognized as the largest housing developer in the United States.

DR Horton, Inc. manages three branches: Emerald Homes operates in the luxury real estate segment, Express Homes is designed for first time home buyers, while Freedom Homes is focused on customers over 55 years old.

The debt to equity ratio is 0.35, which indicates the financial stability of the company. Only in 2008, during the mortgage crisis, it was over 1.00, and shortly after the company’s revenue gradually grew up, while the debt remained at the same level.

The company’s quarterly reports are subject to seasonal factors, but they are still better than last year.

Technically, there’s an uptrend on W1, as the price is still above the 200-day moving average, which has been supporting the stock over the last 7 years. Every time the price went down to the moving average, a reversal followed, and the price made new highs. There’s some logic in it: the price approached the moving average five times, and four of them in fall, after which in November the stock rose again. Of course, this could well be explained with fundamentals. In technical analysis, however, it is important to find a pattern that will increase the likelihood of an event, and the news factor triggering the impulse may appear a little later.

At the moment, the price is somewhere where the probability of its rise is much higher than the probability of decline.

In technical analysis, the possible direction of a price move is determined first on larger time frames, after which it is necessary to switch to shorter ones in order to find a confirmation.

As a result, analyzing D1, one can notice the consolidation between $35 and $37.

The consolidation in any range usually indicates the uncertainty of market sentiment, when traders do not have a clear plan and trade in both directions. This leads to short-term price impulses that end as quickly as they started because the number of people willing to buy equals the number of those willing to sell. Due to this, the balance of supply and demand is maintained, leading to the stock price remaining in a narrow range. Consolidation also has another reason, however: a large buyer.

When a large buyer appears in a stock, they may not always take over a position in one trading session if the current liquidity is insufficient. In addition, one has to disguise their purchase, otherwise, the stock price will skyrocket, and they will not be able to book the planned profit.

As a result, the large buyer begins to systematically ‘scale in’ in small parts within a certain price range with somewhat ‘blurred’ boundaries. But at the same time, every time the stock hit $35, it went up, and thus for 7 sessions in a row.

Before their final attack, the buyer ‘lets the price go’, which makes it either go up or, conversely, sink even lower. If the price reaches the bottom, the buyer starts acting more aggressively at better rates, which is accompanied with a surge in volume (clearly visible when the level of $35 is broken out).

For a more accurate analysis, however, it is necessary to pay attention to even shorter time frames to make sure the predictions are correct. When a large buyer scales in, they either do this with a limit or a market order. Limit orders are preferred, as a large market order may provoke very choppy prices. On H1, we can see it was a limit order indeed, as after the price broke out $35, it stopped near $34 and could not fall below during the next two trading sessions.

The subsequent attempt to fall below $34, meanwhile, led to the fact that at the end of the trading session the stock got back to $35, i.e. the buyer had already begun to actively defend their position. The scaling-in process is over, and they are now waiting for the price to rise.

Retail traders are unable to hold the price or protect their positions at a certain level, but they don’t actually need that. Instead, understanding where the large buyer or seller holds their positions is enough, placing a stop at these levels. The large trader will take care of the rest.

Thus, one can see the large buyer resumes their activity when the price drops below $35 and acts even more aggressively when it’s approaching $34. Basing on these assumptions, we can single out support between $34 and 35. Accordingly, the stop may be placed below the low at $32.50.

In technical analysis, everything is based on the historical data, previously seen patterns and assumptions, but you can never know for sure what will actually happen. Therefore, you always need to determine the entry and exit prices. Just note: the first target for Horton may lie at $45.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 22 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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