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ASCENDING TRIANGLES


Yahoo! Trying To Bounce

05/30/06 10:47:37 AM
by Gary Grosschadl

As the overall markets attempt to bounce off the recent downleg, many stocks will try to follow suit. Will Yahoo! have something to shout about?


Security:   YHOO
Position:   Buy

This weekly chart (Figure 1) shows an ascending triangle breakout from late last year. The breakout stalled at $43 and went sideways for several weeks before plummeting lower. Ideally, breakouts should be accompanied by larger than normal volume, but that was lacking here, so some traders would have found that move suspect.

As the bottom trendline did not hold, a likely next-support level could well be the technical trader's old friend, the 200-period exponential moving average (EMA). Some traders may spot a "spring"-type move here. Normally, a spring is set up when a stock moves above a trading range and then makes an equal move below the trading range. Traders who suspect a spring will target an entry or exit on the opposite side. "Springs" are normally seen in rectangle formations, but this would be a good example of a possible triangle spring. Make a mental note here to watch for triangle springs in the future.

FIGURE 1: YAHOO! WEEKLY. YHOO may bounce back to target zone on this weekly chart.
Graphic provided by: StockCharts.com.
 
Consider two upside targets: the top trendline or original breakout point, and the previous high. With enough momentum, the anticipated upswing could surge higher, but we needn't get too greedy when looking to take timely profits. Reversals at or near these points should be considered as trading signals.


We should also note several indicators. The average directional movement index (ADX) needs to show an upslope, and the directional indicators (DIs) need to cross over before this indicator nods approval. This indicator will lag more sensitive parameters—candlestick patterns and stochastic-type oscillators. The moving average convergence/divergence (MACD) shows an upswing from low levels but needs a bullish cross. Looking ahead, the zero level may be a stall point relating to an upside trading target.

Meanwhile, the relative strength index (RSI) and the stochastic oscillator are approaching key levels of their own. Movements above the respective 50 levels would be bullish.

Should the overall markets surge higher once again, Yahoo! will be a good candidate to exclaim higher.



Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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Date: 05/30/06Rank: 5Comment: 
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