As I was scroungin’ around for an idea to write about, I started thumbing through my carefully curated watchlist and came across a beautiful chart. One that demanded my attention and, indeed, affection. I’ve been staring at it for minutes now, and the connection is undeniable. But I’m not selfish. My mother taught me to share, so share I will.

Feast your eyes on this:

I think there’s a teaching opportunity here. Google (or Alphabet, whatever) boasts a picture-perfect bull retracement setup. It’s fridge-worthy. Print it out and grab some magnets. Your kitchen will thank you.

Four Reasons I Love You

Let’s break it down. First, the 2019 trend has reliably carved out higher highs and higher lows. And its last upswing saw increasing momentum suggesting that buyers’ excitement is building.

Second, the pullback (aka retracement or downswing) is perhaps perfect. Five straight down days of orderly selling. No mad dash for the exit. No mass exodus to scare the children. Nope, just garden variety profit-taking for bulls looking to cash-in on their good fortune. Notice how the last two candlesticks boast twin bottoming tails. This shows buying interest beginning to emerge. And, unless my Japanese candlestick knowledge is failing me, I believe we have a potential tweezer bottom forming. Just look at how today’s smaller candle reveals a slowdown in selling pressure. And right as support is coming into to play. *Chef’s Kiss*

Third, the volume is chill. And chill is good. It means institutions are keeping their grubby digits off the sell button. If only small fries are ringing the register, then the swoon should prove temporary.

Fourth, risk/reward asymmetry. As with any stock sitting on support, Google offers a low risk, high reward opportunity. If it turns higher we have room back up to old resistance at $1,236. That’s roughly $58 of upside. And, if we placed a tight stop one ATR below, we’re talking about some $21 of downside. Looks tasty to me.

As for how to play it, well, choices abound. Equity gunslingers could trade the stock outright. Options enthusiasts could do any number of spreads. Implied volatility sits at the 32nd percentile. Not exactly a steal, but nor is it rich. So take your pick. You want to go aggressive, try the bull call spread. If you desire to raise the odds and build cash flow, then how about the bull put spread?

You could even scale-in for good measure. That way, if the five-day pullback persists for a 6th or 7th day, you can use the adverse movement to your advantage.

Just in Case

So will the trade work? Maybe. Hopefully. But if it doesn’t then that’s what management is all about, isn’t it? This should be something you think about when selecting which strategy to use. If Google does drop, then are you more comfortable wrangling a bull call or bull put? The answer should be a deciding factor as you build your trade.

Unless the stock goes bonkers tomorrow I have a sneaking suspicion it will make an appearance on the Options Report.