Is Alphabet Inc (GOOGL) Stock Headed For A Correction?

GOOGL stock has risen quite a bit in the last one month. Shares of the search giant could be headed for a near term correction.

Why GOOGL stock looks set for a correction

Shares of Mountain View, California-based Alphabet Inc (NASDAQ:GOOGL) are likely to head much higher by the end of the year, backed by strong fundamentals. However, in the near term, GOOGL stock may be headed for a correction. Shares of Alphabet Inc have run up quite in a bit in the last month, and the stock is up by more than 7% since the 1st of February. Based on a combination of technical indicators, the stock looks set for a near term correction. Investors who want to own the stock could use any potential corrections as buying opportunities to enter the stock, given the strong long term outlook.

GOOGL stock looks set for a near term correction - technical analysis.

Shares of Alphabet have had momentum strongly in their favor over the last few months. GOOGL stock has risen sharply from just over $750 a share in November last year, to over $872 a share, where it is trading currently. And if you go by the company's fundamentals, the rally may not be over yet. However, following a solid one month during which the stock gained by over 7%, GOOGL shares have entered overbought territory based on a combination of two popular technical indicators. The two indicators we're talking about are the Relative Strength Index (RSI) and the Bollinger Bands. For starters, let's look at the Relative Strength Index.

The RSI is a popular indicator that's used to highlight overbought and oversold situations. For those unfamiliar, the RSI basically compares the magnitude of recent gains with recent losses, over a specified time period, to measure speed and change of price movements of the underlying security. The standard time frame that's used is 14 days. However, traders can potentially use a different time frame that they like. In essence, the RSI basically quantifies recent momentum. When the RSI is above 70, it indicates an overbought condition, while a reading below 30 is indicative of an oversold condition. Again, traders do use their own thresholds to identify overbought and oversold states, but these are the most commonly used thresholds. If you look at a technical chart for GOOGL stock, the RSI entered overbought territory, rising to 71.9 on Thursday, and subsequently to 72.8 on Friday.

The other popular indicator that's signalling an overbought condition is the Bollinger Band. Bollinger Bands are plotted two standard deviations away from a simple moving average, both above and below it. The most commonly used is the 21 day Simple Moving Average (SMA). While the two standard deviations capture ~90% of the price movements, if the stock price touches the band above, the upper band, it's deemed to be overbought. If the stock price touches the lower band, it is deemed to be oversold. For now, GOOGL shares have hit the upper band, indicating that the stock is currently in overbought territory, and could correct in the near term.

Summing It Up - Buy GOOGL Stock On Dips.

Despite the possibility of a correction in the near term, GOOGL stock still looks attractive for long term investors. Even with its massive revenue base, Alphabet Inc is still managing to deliver solid growth. And if reports are to be believed, Google is also catching up with Amazon in the cloud computing market. To be clear, Google still has a long way to go before it can worry Amazon, but The Motley Fool's Evan Niu suggests that it is indeed catching up, albeit slowly. We'd discussed this in more detail ourselves in a recent article that looked at whether GOOGL stock was really worth $1000, as many analysts have suggested it does. As things stand, GOOGL stock is a good bet for 2017. We believe that shares of Alphabet Inc are headed higher, and we like the stock fundamentally, to the extent that we've added it to our list of top stock picks, which have beaten the NASDAQ by over 134%.

If you think that's impressive, and you're also looking for good stocks from the auto sector, here's our list of top auto stock picks, which have beaten the S&P 500 by over 170%.

Vikram Nagarkar Vikram Nagarkar   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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