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SUPPORT & RESISTANCE


Yahoo! Holding Big Breakout

12/20/05 02:28:11 PM
by Arthur Hill

Yahoo! broke a major resistance area in November, and this breakout should be considered bullish as long as it holds.

Security:   YHOO
Position:   Hold

I last featured Yahoo (YHOO) in early November when the Bollinger Bands were narrowing and the triangle consolidation was unfolding. The breakout turned the chart bullish, and this pointed to higher prices over the next few months. Now we must identify key support and indicator levels to watch for proof to the contrary.

FIGURE 1: YAHOO! The commodity channel index became overbought in November in YHOO and declined to about 110 in December.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
The first test is broken resistance. The stock broke resistance at 39 with a strong move in November, and this breakout held in early December (Figure 1). Strong stocks should hold their breakouts and Yahoo! survived the first test. A move back below 39 would be a sign of weakness and throw cold water on the November breakout.

In addition to broken resistance, I will be watching a 20-period commodity channel index (CCI) on the weekly chart. This indicator became way overbought in November and declined to around 110 in December. As long as the indicator holds above 100 (gray circle), the current uptrend is considered strong. A move below 100 would show weakness and lead to a correction or pullback. Notice how prior moves below 100 accompanied peaks July 2004, December 2004, and June 2005 (red circles).

At this point, the onus is on the bears to prove the bulls otherwise. The stock has stalled above the breakout at 39, but has yet to sputter and reverse with a move back below the breakout.



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
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