YHOO Yahoo Weekly Chart Overbot Negative Divergence Potential M Top

Last time the YHOO chart was reviewed was in the 20's that appeared to be a topping out area but turned out to only be a rest stop on the way higher. The obvious driver of this stock is Alibaba. Or perhaps 95% Alibaba and 5% Marissa Mayer's sexy persona. However, all good things come to an end. Detailed fundamental analysis is required for this stock to fully understand the Alibaba Yahoo relationship.

On the technical side, the blue expansion channel highlights the phenomenal price move from 15 to 40, +170%, in only 16 months. Alibaba supplies the magic carpet ride. The diamond pattern last summer turned out to be a diamond continuation pattern. Diamonds are tricky and not a particularly useful pattern since half the time they dictate the trend change and the other half of the time they maintain the price move. The first leg up was from 15 to 27, about 12 handles, then the diamond pattern, then out the other side from 27 which would target 39 (27+12). Bingo. Price is bumping around this area currently and the diamond pattern is satisfied.

The red lines show the negative divergence spank down over the last 2 weeks. The MACD line, however, was still peaking with price, so it wants to see price come up one more time. This would set up a double-top, or M top pattern, with a roll over to the downside expected. When price moves higher watch the maroon lines in the right margin since they will all likely maintain negative divergence creating a firm and extended spank down. Keystone's 80/20 rule says 8's typically lead to 2's, so 38 would lead to 42 and 39.80 would lead to 40.20 and 40.80 will lead to 41.20. YHOO is not attractive from the long side. A short may be an attractive trade, say from 42 and higher, with a downside target of 34-37 perhaps by spring and summer. The price move back up to create the M top and roll over should occur within the next month.

The magic Alibaba carpet is sputtering. Mayer is frantically rubbing the lamp hoping for the genie to return but it appears that all the wishes have ended for Yahoo. The chart says it is time to cycle out of Yahoo, and perhaps short above 42 for the speculative traders, and to simply move on to other opportunities. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.