Trading Blueprint for Alphabet (GOOG) Earnings Report

Internet technology behemoth Alphabet, Inc. (NASDAQ: GOOG) reports Q4 2019 earnings after the close on Monday, Feb. 3, 2020. Analysts expect $12.65-earnings per share (EPS) on revenues of $46.857 billion. The diversified internet marketing and information technology platform has faced much scrutiny from Congress and European regulators over privacy data and procedural policies. Investors will want visibility from the implementation of COPPA measures after a $170 million settlement with the Federal Trade Commission (FTC).   The impact on YouTube channel operators and relevance to growth is key concern for investors. GOOG has extended broader reach into gaming as a streaming partner to various interactive gaming experiences including recently announced Activision (NASDAQ: ATVI) eSport live tournaments taking a shot at the Amazon (NASDAQ: AMZN) Twitch platform. Stadia gaming platforms will launch over 120 games in 2020 and launching Stadia Pro in February 2020. Regulatory intervention and impact to investor sentiment and growth is of key concern.    

Macro Context and Influences

The S&P 500 ETF (NYSEARCA: SPY) is our macro market indicator. Market sentiment turned sharply negative on the shocking Chicago PMI miss of 42.9 versus 48.9 expectations released Jan. 31, 2020. This was the lowest reading since December 2015. Combined with further Coronavirus contagion and Chinese equity markets reopen, markets have taken a risk-off stance. This casts a bearish context heading into earnings post-market on Monday. Bearish macro conditions affect the dynamics of sentiment where great earnings can be perceived as “priced in” triggering a sell the news event. GOOG tends to move with the SPY since it is a top S&P 500 index component stock.

Technical Analysis

Utilizing the rifle charts, GOOG monthly stochastic has been in a bullish mini pup that overshot the upper Bollinger Band (BB) at 1,435.67 to peak at the 1.618 Fibonacci extension (fib) at 1500.34. However, the monthly 5-period MA is the support and nominal pullback area near 1,311.28. The weekly chart formed a bearish shooting star candle and a market structure high (MSH) triggering under the 1,422.86 fib. While the weekly stochastic crossed down, it is still above the 80-band. The nominal pullback on a downdraft would be the weekly 15-period MA overlapping the daily lower BBs at the 1353.07 fib. The daily stochastic has been in a bearish mini inverse pup with key support at the 1,394.50 “super” fib since it’s the 0.618 retracement and 0.382 expansion overlapping price.

Sympathy Stocks:

GOOG is a bell-weather member of the S&P 500 index which means it can influence the macro markets. Due to the diversified nature of GOOG, sympathy stocks can be traded in various industries like social media players Twitter (NASDAQ: TWTR), Snap, Inc. (NASDAQ: SNAP) and Chinese search engine Bidu (NASDAQ: BIDU). Generally, a large move in GOOG will have a ripple effect on internet stocks.

Trading Game Plan:

GOOG has extremely wide spreads making it a trading stock only for seasoned traders with large accounts. Due to the advent of zero-commission trading, traders can and should be scaling light fractional shares especially in the after-hours session. Spreads can be as wide as five points after the release making it a double-edged sword for both profits and losses. Even the fib levels need wiggle room upwards of two-points. The key downside price levels for reversion bounce/buy levels (rounded to the nearest dollar) are 1,397 super fib, 1,370 secondary super fib and 1,353 overlapping weekly 15-period MA, daily lower BBs and super fib. Upside reversion short-sell levels are 1,455 super fib, 1,482 daily MSH trigger, 1500  key 1.618 fib, 1509 fib, 1,527 daily upper BBs and 1,569.35 extension fib. Each of these levels can be used as a high-probability reversal price zone to scalp. The most volatile period will be the  morning session right off the opening bell. Placing enveloped limit orders at the upper and lower range is a technique experienced traders can consider deploying since the algos will be moving at lightning speed. If GOOG is too expensive for your account, use it more as a lead indicator for sympathy stocks like BIDU, TWTR and SNAP in that order of volatility. For example, SNAP is a much slower-moving stock so don’t expect large price swings, however, the liquidity is thick enough to play larger sized positions to scalp 0.05 to 0.20 scalps.