Trading Yahoo in a Post Alibaba World

• Posted by Greg Harmon
• on September 16th, 2014

By the end of the week Alibaba ($BABA) will be trading on its own. I do not think there is anyone on the planet that does not know that Yahoo ($YHOO) has a very large stake in Alibaba and will be selling some of it. But there are a lot of opinions about the value of Yahoo’s stock. The prevailing view seems to be that it is inflated because of the IPO and when that settles Yahoo is a broken company to sell. Only the chart of the stock price says that perhaps you should ignore the noise opinion and take another view. In fact it is screaming at you!

The monthly chart of the stock price above says a lot. First the stock has been in a tightening range since 2002 with resistance at 40.80. Second, there is further resistance at 45 above that from 1999. Third, the stock price is moving into that range, over 40 and below 45, for the first time since 2000. Next, the stock has been under accumulation since 2012 and it is picking up. The RSI is bullish and rising, supporting further upside in the price action. Finally the yellow box shows there is very little cumulative prior experience (volume) above $45.

Those are the facts. So what do you do with them? Despite the noise of overvaluation, this stock shows a clear bias to the upside now. Should that last candlestick hold up through the end of the month it will be hard to make a case not to be long this stock. The IPO will be over. There is a natural stop at 40.80 and possible massive upside through the 45 level. Even if you do not like the 15 year view the shorter 24 month picture still reveals a move higher and consolidation before a return higher targeting 60 on a Measured Move higher.

So sit back and watch the IPO. You have time. But if this stock holds over 40.80 post IPO write it off as noise or nonsense at your own peril.

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