Yahoo On Watchlist

11/08/11 09:03:40 AM

by Alan R. Northam

This statistical analysis shows Yahoo in an upward correction that when exhausted will send price in a bear market selloff.

Security: YHOO
Position: N/A

Figure 1 shows the daily price bars of Yahoo (YHOO). This figure shows the 200-day linear regression line (solid blue line) along with its upper one sigma channel line (dotted red line), its upper two sigma channel line (solid red line), its lower one sigma channel line (dotted green line), and its lower two sigma channel line (solid green line). Besides their statistical significance, the red channel line represents overhead resistance and the green channel lines support.

FIGURE 1: YHOO, DAILY. This chart shows the daily price chart of Yahoo in the lower panel along with its downsloping 200-day linear regression trendline and its associated channel lines. The top panel shows the linear regression slope indicator directly followed by the R-squared indicator in the middle panel.

Graphic provided by: MetaStock.

The bottom panel of Figure 1 shows that over the last 200-day trading sessions, the linear regression line along with its upper and lower channel lines have been sloping in a downward direction, indicating a long-term bear market trend.

With the long-term trend in the downward direction, the rally from early August is corrective. Note that price has bounced off the upper two sigma channel line that is acting as strong resistance. Note also that more recently price has bounced off the upper one sigma channel that is now acting a support. Recall that old resistance becomes new support. Thus, once price breaks out above a line of resistance, that line of resistance becomes support. Price is now moving in an upward direction to retest resistance from the upper two sigma channel line. A successful retest will then reverse price back down to continue the long-term bear market selloff.

In the bottom panel of Figure 2 is shown the 50-day trading session linear regression line along with its upper one sigma channel line (dotted red line), its lower one sigma channel line (dotted green line), and its lower two sigma channel line (solid green line). Again, the red channel lines act as resistance and the green channel lines support. Note that twice over the last 50-day session period, price has broken down below the lower one sigma channel line; this is a sign of weakness.

With the current break down below the lower one sigma channel line, this line of support is now acting as a new line of resistance. Price is currently testing this newfound line of resistance. A successful retest will send price downward to test support from the lower two sigma channel line (solid green line). A breakdown below the lower two sigma channel line will warn of a reversal and the possible continuation of the long-term bear market selloff.

FIGURE 2: YHOO, DAILY. This chart shows the daily price chart of Yahoo in the lower panel along with its upsloping 50-day linear regression trendline and its associated channel lines. The top panel shows the linear regression slope indicator directly followed by the R-squared indicator in the middle panel.

Graphic provided by: MetaStock.

Yahoo is in a long-term bear market trend. The current rally off the August low price is corrective. Once this correction has run its course, the selloff will resume. A breakdown of the 50-day session lower two sigma channel line will be a warning that the selloff is ready to resume. At this point, traders can look to technical indicators or statistical indicators to determine when to short Yahoo. For now, put Yahoo on your watchlist.

Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.

	Garland, Tx
Website:	www.tradersclassroom.com
E-mail address:	inquiry@tradersclassroom.com

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