Yahoo! Stock of the Year 2015, I mean 2016?

• Posted by Greg Harmon
• on June 30th, 2015

Back in December 2014, I picked Yahoo ($YHOO) as my long term stock pick of the year. At the time it was technically ready to break above a 10 year high into a lot of free space, and it was caught up in the battle for valuation between zero (or negative ex- their Alibaba stake) and genius valuations.

Well you can see from the chart below of monthly price action that it has not panned out. In fact it is down over 20% and I am in last place in the InvestorPlace 10 Best Stocks for 2015. Not just last place, I am getting my ass kicked.

In my personal account I have long since stopped out of the position. That is the value of real life over a contest. I can set my maximum risk and then cut my losses when it get to them. You should have a plan like that too. In fact with a 5% risk tolerance against the full list of 10 names you would be in 6th place with a 5% loss.

Yahoo is a great example for the pros and cons of technical analysis. In December it had a great set up and even started to trigger. But the failure is probably the most important part of the technical picture. I often say that technical analysis is about points of reflection not points of inflection. That means it is about possibility not certainty. A possible road map.

And this road map clearly had a wrong turn. This is why technical analysts are also known as risk managers. They look for possible trades and investments but have a focus on how to mitigate any risk BEFORE they trade. For me that was the stop loss.

A second point about technical analysis is that it is much better at helping determine price potential than it is about the timing. The chart of Yahoo actually still looks very good. Technically it has pulled back from a bigger Cup and is forming the Handle of that pattern. As long as the price stays over 31 the Cup and Handle pattern would set a target to the upside of about 90. This just adds to the list of positives technically.

The price action this year can also be viewed as a Bullish Flag. The momentum indicator, RSI remains over 50 and bullish, and the accumulation/distribution statistic has stalled in its rise, but is not reversing. Personally I might give up watching it if it falls below the early 2014 base around 34. But the potential is still there. Stock of the Year 2016? 2017? 2018?

Get my ebook, Markets for 2015 and Beyond, a long term forecast with all proceeds going to charity.

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