Yahoo! Consolidates At Resistance

07/11/06 08:37:10 AM

by Arthur Hill

After a late June surge, Yahoo! formed a tight consolidation during the last six days and the subsequent break will dictate the next tradable move.

Security: YHOO
Position: Hold

Yahoo! has been all over the place the last few months and is once again challenging resistance. There was a big gap in April (blue oval), sharp declines in early May and early June, a surge in mid-May, and a surge in the second half of June (Figure 1). There have been four moves greater than 10% in the last two months. After the last 10% surge, the stock is challenging resistance around 33.5–34. This resistance area stems from the April, May, and July highs. A breakout would clear the way for higher prices.

FIGURE 1: YAHOO! This stock is once again challenging resistance, with a gap in April (blue oval), declines in early May and June, and a surge in the second half of June. A tight pennant also appeared in early July.

Graphic provided by: MetaStock.

Since reaching the resistance zone, the stock formed a tight pennant over the last six days (blue lines). These reflect indecision, and this is hardly surprising after a 13.5% advance. This move created an overbought condition and the consolidation is a way to work off this condition. Note that the commodity channel index (CCI) moved above 200 in late June. A break above the pennant high (33.5) would signal a continuation higher. A failure at resistance and a break below 32 would fill the late June gap and argue for another support test around 29–29.5.

I am also watching the CCI for a potential signal. This indicator bottomed and became oversold in mid-May. The oscillator moved higher the last seven to eight weeks and became overbought the last week of June. I do not consider overbought as bearish because the indicator is still trending higher (green trendline). A move below the green trendline and into negative territory would turn momentum bearish and this could be used to confirm a support break at 32.

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.

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Yahoo! Consolidates At Resistance

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