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It seems Warren Buffett is making waves again. News recently broke that Berkshire Hathaway took a significant $4.9 billion stake in Alphabet (GOOGL). As you would expect, the stock rallied hard on the news. When the Oracle of Omaha makes a move, people pay attention. But should you follow him into this trade? I have some serious questions.

The first thing that comes to mind is the timing. We’re in a market where many stocks, especially big tech names, look notoriously overvalued. Chasing a stock after a major news-driven rally is often a recipe for getting burned. Secondly, let’s be realistic. At 95 years old, Buffett doesn’t exactly have a long investment horizon. This might be a shorter-term play for him than his typical “buy and hold forever” strategy, or perhaps he does see an opportunity that others are missing but despite the elevated price, feels he can’t wait for a better price down the road.

As a nimble swing trader, my focus is not on what Buffett is doing, but what the charts are telling me right now. I care about managing risk and finding profitable entry and exit points. Let’s break down the technicals for GOOGL and see what story they tell.

My GOOGL Technical Analysis

When I look at the chart for GOOGL, I see a stock that is clearly in a strong uptrend. However, the recent spike has pushed it into what could be considered overbought territory. This is where discipline becomes crucial. Jumping in now feels like chasing, and chasing is how traders lose money.

Instead, I’m looking for a pullback to a more logical area of support. The market ebbs and flows, and no stock goes up in a straight line forever. A healthy correction would provide a much safer entry point with a better reward-to-risk ratio.

(Click on image to enlarge)

Here is my approach to trading GOOGL:

• Patience is Key: I will not buy GOOGL at its current levels. The risk of a sharp pullback is too high following the recent excitement. I am waiting for the price to come back down and test a key support level.
• Identifying Support: I’m watching the previous resistance area, which should now act as support. A successful test of this zone would signal that buyers are still in control and provide a solid foundation for a long position. Not to mention it blends perfectly with the rising trend-line right now.
• Risk Management: My strategy always involves a clear exit plan. If I were to enter a trade, I would place a stop-loss just below that key support level and rising trend-line. Admitting you’re wrong early is one of the most important skills a trader can have. If the stock breaks that support, it tells me my initial thesis was incorrect, and it’s time to get out and preserve capital.

I’m not interested in hoping a trade works out. I’m interested in putting the odds in my favor. Right now, the odds for a long entry on GOOGL are not favorable. The excitement around Buffett’s investment has created a short-term frenzy, but disciplined traders know that emotion is the enemy of profit.

How I’m Trading This Google Stock

Ultimately, my decision to trade GOOGL (or GOOG for that matter), or any stock, depends on the broader market context. I’m a nimble trader, which means I adapt to what the market gives me. If market internals are strong and setups look promising, I’ll be more aggressive. If things look weak, I’ll be more defensive. At the moment, while the market looks hot on the surface, very few stocks are actually participating in the rally. This lack of broad participation makes me cautious.

The smart move here is to let the dust settle. Let the Buffett hype fade and see where the price action takes GOOGL. A pullback would be a gift, offering a much better opportunity to get in on this uptrend with a defined risk level. For now, I’m happy to watch from the sidelines.

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