Chinese internet security software firm Qihoo 360 Technology Co. Ltd. (QIHU) had a choppy stock price for the first two years as a publicly traded company. After the March 2011 initial public offering (IPO) the stock dropped for a few months and then began to settle into a percentage-wise wide, but very defined trading range between roughly $14 and $25. After multiple tests of both the upper and lower end (which of course defines a trading range), the stock broke higher in December 2012 and by so doing laid the groundwork of what has since been an epic run higher. Since December 2012 the stock is now roughly 190% higher, in what has been a vertical leap since April of this year. As I so often discuss, steep rallies like this one or what we are still witnessing in Tesla Motors (TSLA) eventually mean-revert to the downside, the question as always is one of timing.
The best way that I have learned to tell when a momentum stock like Qihoo 360 Technology Co. Ltd. (QIHU) is done trending higher, at least for the medium term, is by watching the stock’s reactions to one or multi-day sell-offs. Given the trend following investors so often involved in names like these, the herd mentality often has them jumping in and out of stocks as a group, thus clearly marking changes in trends.
In the case of Qihoo 360 Technology Co. Ltd. (QIHU), late last week the stock exhibited some wild swings that took the stock marginally below its 21 day simple moving average but on Friday with a big rally flipped the stock right back up. Stocks at the crossroads of a change in trend don’t act as such. Yesterday, Monday August 19th all of this was topped off with continuation buying that pushed the stock to a fresh all time high. From here, while a downside reversal can happen at any point, the stock remains bullish positioned within the confines of the June up-trending channel, while any break below and out of it would be a first bearish sign.