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Yahoo: A Double Top In The Making

09/12/03 07:52:04 AM
by Arthur Hill

Even though it is far from confirmed, the early signs suggest a double top for Yahoo. Yahoo (YHOO) and a host of internet stocks have been star performers over the last 9-12 months.

Security:   YHOO
Position:   Sell

Yahoo advanced from 9 to 36 over the past year for a whopping 300 percent gain. The stock first met resistance around 36 in July and then established support at 28 with a reaction low in August. The advance over the last few weeks carried YHOO back to resistance, but with a significant loss of momentum and relative strength.

Momentum, as measured by MACD, peaked with the stock in July. MACD declined below zero and then recovered with the most recent advance. However, MACD never came close to its July high and Yahoo exceeded its July high, both on a closing and intraday basis. The lower high in MACD and higher high in Yahoo make for a bearish divergence in the indicator. Further weakness below the signal line (magenta line) would confirm the divergence and argue for lower prices.

Graphic provided by: MetaStock.
 
Relative to the Nasdaq Composite, Yahoo outperformed until the July peak. As the price relative shows, Yahoo led the Nasdaq Composite higher from Sept-02 to Jul-03. The price relative peaked in July and remains well below this high in September. The result is a bearish divergence in the price relative and underperformance by Yahoo, a former leader no less.

The second high is starting to form, but it would take a move below 28 to confirm the double top. A high volume shooting star formed on September 9 (red arrows) and this confirms resistance around 36. The long upper shadow (intraday high) reflects the inability to hold intraday gains. Combined with high volume, the potential for a short-term reversal increases and a move towards support at 28. A support break at 28 would confirm the double top and project further weakness to around 20 (36 - 28 = 8, 28 - 8 = 20). In addition, a move below 28 would break the trendline extending up from October 2002.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
Company: TDTrader.com
Address: Willem Geetsstraat 17
Mechelen, B2800
Phone # for sales: 3215345465
Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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Date: 09/14/03Rank: 5Comment: 
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