Chart of the week: Time to bet against Google?

Are we at the end of the Alphabet?

Alphabet (GOOGL) (aka Google) is one of the members of the infamous FAANG Gang and has been in a virtually non-stop road to the stars as it has dominated many growing tech sectors – including such sci-fi areas as driverless vehicles. Many UK investors have this share as a core holding – and their loyalty has been well rewarded. But will that continue for much longer?

The bullish case is well-rehearsed. As the dominant player, surely it has few rivals to take over its crown any time soon. The consensus is that the US Tech Titans will now on-shore their vast accumulated off-shore wealth following the Trumpian tax cuts, and they will use much of that to buy back their own shares (Cisco (CSCO) plans to use one-third of the $70 billion it holds offshore for that very purpose).

But with the severe 20% shake-out in February, I ask is that a prelude to a much more severe correction?

To provide clues, I will go to the long-term monthly chart for an overall perspective:

Source: interactive investor      Past performance is not a guide to future performance

Yes, the rise has been almost uninterrupted since its stockmarket launch in 2004 at $85 a share, with the fifth wave in an almost exponential rise (in common with most of the other US Tech Titans).

From a wide experience of history, we know that exponential rallies capping a very lengthy bull run always ends in a much steeper collapse/crash. For most, this will be a very difficult concept to accept today. And that is why I am seeing if I can make such a case when bullish sentiment remains sky-high.

Getting this right should result in massive profits.

But already, there is a clear five waves to the pattern with the push up to the $1,200 area as the possible top.

Here is a close-up of the fifth wave:

Source: interactive investor      Past performance is not a guide to future performance

I have drawn a superbly precise tramline pair both of which contain multiple accurate touch points. And the surge up to the wave 5 high made a precise hit on the upper line – and then promptly crashed down by 20% to the lower tramline where it bounced. That is a very pretty verification of the support and resistance powers of my tramlines.

We are now in a Buy the Dip bounce that has taken it to a Fibonacci 76% retrace of the plunge. This is the moment of truth for my bearish case. If the market turns down from around here, we will have a third Elliott wave – the most persistent wave in the book.

And a sharp decline here would set up another test of the plunge low at $1,000. If that occurs, I can set a major target at the $700 area.

Sentiment against the US tech majors seems to be turning with almost daily attacks from the authorities of their negative influence on society, so is my target really so out of the question?

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