Google Stock Faces Bounce After Apple's AI Plans Turn Heads
Shares of the search engine leader are under pressure after some big news, but traders should buy in at this level.
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Alphabet GOOGL shares plunged 7.5% on heavy volume on Wednesday, on word that Apple might add AI capabilities to its search engine.
Back in 2022, Alphabet paid $20 billion to Apple. In return, Google became the default browser for Apple’s Safari. That deal is under scrutiny, due to a Department of Justice lawsuit against Google.
Word that the Cupertino, California-based maker of iPhones may be moving away from Google came as a result of DoJ testimony by an Apple official. The Justice Department is seeking a breakup of Google, possibly forcing it to divest itself of its Chrome browser and/or its digital ad technology.
Alphabet's Next Stop
How will this news affect Alphabet going forward? Let’s go to the chart to see where shares of the trillion-dollar giant are headed next.
Alphabet wasn’t just crushed on Wednesday, it was hammered down on the heaviest volume seen by this stock in years. Over 78 million shares changed hands, a possible sign of heavy institutional selling (point A).
That heavy volume bodes particularly ill for Alphabet, as institutions are estimated to own about 78% of its outstanding shares. Institutions tend to enter and exit positions slowly, so it’s possible that Alphabet shares could see additional selling.
Clues Were There
There were significant hints that Alphabet shares were in danger of a selloff.
Just prior to Wednesday’s decline, Alphabet encountered heavy selling at the 38.2% Fibonacci retracement of its February/April decline (point B). Alphabet’s declining 50-day moving average (blue) recently crossed below its declining 200-day moving average (red), creating a so-called death cross (point C).
On Wednesday, the stock dropped to its lowest level since April 2021. For the year, shares of Alphabet are now down by about 20%.
The next line of defense for Alphabet is the April 7 low of $142. If the stock falls below that level, it’ll reach a 52-week low.
Strategic traders should consider buying Alphabet if the stock trades near $142, as a bounce is likely. Traders should exit if the stock breaks cleanly below that level.
A Noun and a Verb
Personally, I’ve always been a fan of Google. If you're familiar with the cacophony of Yahoo’s offerings, or the unreliability of Microsoft’s Internet Explorer, Google’s clean, reliable interface was a godsend.
There's a reason why Google is both a noun and a verb. Users weren't tricked into using Google, they flocked to it because they wanted a better experience. They will still feel the same way, regardless of the outcome of the DoJ lawsuit.
At the time of publication, Ponsi was long AAPL.
