Alphabet Preview

With fears of an impending recession, how vulnerable is the world's largest search engine, and can it capitalize on the move to the cloud?

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What's moving the stock

Alphabet is, of course, most known for its search engine, Google. It owns other properties, but one of the defining features is that these other platforms also derive the majority of their income from advertising. Which in the current environment might be a good thing, as Publicis reported earlier in the week that advertising spend was up by double-digits in Europe and the US. But, this might not be enough to offset another challenge: the extraordinarily good earnings Alphabet will be comparing to.

Earlier this month, Alphabet completed its 20-for-1 stock split, making it potentially more appealing to retail traders, and opening the possibility of a Dow listing. While that might be positive for the stock in the long run, Alphabet stock has been thrown by the same look as most other tech firms due to the Fed's policy tightening. Meaning a recovery in the stock might depend more on the economic situation than its performance metrics.

Looking to the future

Traders are likely to be interested in guidance, considering Alphabet recently announced a slowing of hiring as worries of a recession circulate in the markets. Over the last month, analysts have been cutting their expectations for the company's earnings this quarter. During times of economic stress, ad spending is the first thing companies cut, which could hurt Alphabet's top line.

Advertising accounts for 80% of the company's earnings, and cloud computing just 9%. Cloud has been a bright spot in the tech sector, yet the division hasn't turned a profit for Alphabet, yet. Investors are likely to be very curious about the company's capital expenditure program, and measures to shore up the finances ahead of some expected choppy waters.

Alphabet is expected to report earnings of $1.28 on $69.7B in sales.

Alphabet breakout imminent

The long-term trend of Alphabet remains bullish above the 50% Fibonacci retracement of the $50-$152 upward leg near $100. The medium-term reversal off the top down to $102, however, might increase sellers’ appetite should bears resist an attempt at breakout past the top of the $101-$120 range. For now, the pin bar formation has not seen the desired follow-through up either, despite the bullish divergence.

Short-term bulls might find resistance at $120 as it coincides with the 20-week average, whereas support lies around $100 for bears. Past that top, the 50-week average and all-time high can be observed at $132 and $152. Below the range low, the golden ratio of 61.80% lies only $20 lower at $80. But breaking 50% would shift the medium-term outlook to bearish, opening the door to $75 and even $50. This makes the $50-$102 trendline all more important.

Source: Spreadex trading platform

Key takeaways

Alphabet derives the majority of its income from advertising and might have been thrown by the same look as other tech firms due to the Fed's policy tightening.

Alphabet recently announced a slowing of hiring due to a likely decline in earnings, so, investors will be interested in how the firm’s capital expenditure program will affect the company's bottom line.