This FAANG Stock Could See New Highs Next Week

Optimism is being priced into Google shares ahead of Monday night's earnings event

Jul 21, 2017 at 2:38 PM
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Tech earnings will be front and center next week, with Google parent Alphabet Inc (NASDAQ:GOOGL) set to take its turn in the limelight after Monday's close. GOOGL stock tends to fare well in the session subsequent to reporting, finishing higher in six of the past eight quarters. On average, Google stock moves 4.7% the day after earnings, regardless of direction. This time around, the options market is pricing in a slightly higher swing of 5.1% for Tuesday's trading.

A move of this magnitude to the upside would put the shares near $1,043, based on their current perch at $992.66. This would mark a new record high for Google, which topped out at an all-time best of $1,008.61 on June 6. After notching this notable milestone, the stock pulled back sharply, but bounced sharply in the $920 neighborhood -- home to its late-April bull gap and 80-day moving average. This trendline has served as support before, catching brief pullbacks in late March and mid-April.

Ahead of Monday's quarterly event, total options open interest on GOOGL is at an annual peak, with 275,553 contracts outstanding. While it's a near-even split between calls and puts, options traders have displayed a big appetite for bullish bets over bearish in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day call/put volume ratio of 1.91 ranks just 6 percentage points from a 52-week peak, meaning calls have been bought to open over puts at a near-annual-high clip.

While options in the soon-to-expire front-month July series have been popular over this two-week period, the weekly 7/28 1,000-strike call has also seen notable attention. This strike is now home to top open interest in the weekly series, and data from Trade-Alert suggests buy-to-open activity. If this is the case, the goal is for GOOGL to break out above the $1,000 mark by expiration at next Friday's close.

This expectation for limited downside for Alphabet stock is seen elsewhere, too. A slim 0.4% of Google stock's float is currently sold short, and would take just over one session to cover at the average pace of trading. Plus, 88% of covering analysts maintain a "buy" or better, while the average 12-month price target of $1,065.68 stands in uncharted territory. Deutsche Bank chimed in on GOOGL today -- and fellow FAANG name Facebook -- boosting its price target by $8 to $1,258.

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