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GAPS


Yahoo Gaps Up

04/15/09 02:09:03 PM
by Chaitali Mohile

Will the trend reversal breakout pull Yahoo higher?

Security:   YHOO
Position:   N/A

Yahoo Inc. (YHOO) is one technology stock that was hammered badly during the market turmoil. The stock, worth $35 in its heyday, plunged to below $9 in November 2008. The average directional movement index (ADX) (14) in Figure 1 reflects a robust downtrend since April 2008. An oversold relative strength index (RSI) (14) and the bullish crossover of the moving average convergence/divergence (MACD) (12,26,9) initiated a pullback rally from the new low at $8.94 in November 2008. YHOO gradually formed an ascending triangle at the bottom.

The ascending triangle in Figure 1 is a trend reversal indication as it has occurred in the developed downtrend. The potential breakout of the pattern appears in an upward direction. On the weekly chart, YHOO witnessed a gap-up breakout on April 13. The gap-up added a bullish strength in the breakout that will ultimately result in a trend reversal. Currently, the ADX (14) is indicating a weak downtrend, but an uptrend has not developed even after the breakout. The RSI (14) has surged from oversold territory and would open fresh buying opportunities above 50 levels. The MACD (12,26,9) is positive in negative territory.



FIGURE 1: YHOO, WEEKLY. The uptrend is not developed even after the bullish breakout of the ascending triangle.
Graphic provided by: StockCharts.com.
 
Therefore, the picture is not so completely bullish as to drag the breakout rally higher. In addition, the declining 50-day moving average (MA) would restrict the upside move. Hence, YHOO is likely to consolidate in the range of $14 to $16. As the range is very narrow, volatile price movement is possible. Fresh long positions can be triggered above 50 levels of RSI (14) or after converting the 50-day MA resistance to support. I am reluctant to measure the potential target of an ascending triangle breakout because the stock is likely to consolidate. So the 200-day MA resistance would be the target for traders.

FIGURE 2: YHOO, DAILY. The breakout has immediate resistance of the 200-day MA.
Graphic provided by: StockCharts.com.
 
The ascending triangle is formed on the daily time frame as well, making the pattern stronger. The inverted hammer initiated a bullish rally from the low of $8.94 in YHOO (see Figure 2). The upper trendline that is the sellers' line of the triangle was challenged twice, but the breakout occurred at the third attempt with the gap-up opening on April 13. The ADX (14) is marginally below the 20 levels, and the MACD (12,26,9) is indicating rough movements with the support of the zero line. The bullish outlook for the MACD (12,26,9) is that the oscillator has established support at the zero line, suggesting a stable upside move. However, the overbought RSI (14) is retracing back to 50 levels, indicating a lack of bullish strength. Therefore, Figure 2 is indicating mixed views that might result in a bullish consolidation under the 200-day MA resistance.

To conclude, the YHOO gap-up would currently consolidate under the resistance.



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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Date: 04/15/09Rank: 4Comment: 
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