Why There's A Potential Bullish Breakout In Alphabet

VantagePoint Trading Software is a forecasting tool that uses both end of day data and artificial intelligence to provide traders a forecast of market movement. These forecasts are 1-3 days in advance and help traders improve their timing on making trades and maximizing profit potential. The artificial intelligence software forecasts market movement for stocks, futures, Forex and ETFs. 

This entry looks Alphabet Inc GOOG GOOGL.

The VantagePoint Trading Journal On Google

The technology sector has rebounded from its late-November sell-off, as the Technology Select Sector SPDR Fund XLK has gained back most of its losses. Google, XLK's third-largest holding, looks like it could have a potential breakout thanks to a recent bullish crossover on Dec. 8.

The chart above shows two significant things. One, a bullish crossover indicated by the blue predictive indicator line crossing above the black, simple 10-day moving average on Dec. 8. Two, the VantagePoint neural index indicator (green line) moving from the zero to the one position. This indicator measures strength and weakness for a 48-hour period. The move to the one position further makes the case for a potential bullish scenario. 

Strategy Discussion

If one were a straight stock trader, simply buying GOOGL in the $1050 area could prove to be prudent with a sell-stop order in the $1040.00 area to mitigate potential losses.

For more active traders with a shorter investment time horizon, consider a setup utilizing options. 

One approach could be the purchase of a debit call spread. The critical piece here is to identify a target price. We can determine that with three simple inputs. Those inputs are the current price, time to expiration (expiration date) and at-the-money volatility for this time horizon. In this case, we’ll use a price of $1049.700, an expiration of Jan. 19 and at-the-money volatility of 16.9 percent. This yields a target price of $1,100.00.

We can consider the monthly 1085/1100 call vertical trading $3.20 at the time of this writing. This spread has a maximum risk is the premium paid ($3.20), and the maximum reward is the width of the spread of ($15.00) minus that premium. That leaves us with a potential net profit of $11.80, and a reward to risk ratio of 3.69:1 (11.80/3.20).

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for their risk tolerance.

VantagePoint is an editorial partner of Benzinga