Yahoo’s (YHOO) share price took a serious beating since early May as the company got caught up in one of the many business shenanigans in China that broke news as of late. The issue in specific was that the successful Internet entrepreneur and stakeholder in Alibaba, Jack Ma, secretly transferred Alibaba’s online payment service Alipay to a private firm he is in control of. Alipay is a major asset for Alibaba and Yahoo is a major shareholder in Alibaba. Fears of losing revenue for Yahoo ran wild as the news broke on May 11th and Yahoo’s stock price fell more than 20% over the following four weeks.
Fundamentally YHOO is expected to return to positive revenue growth in the second half of 2011 and from what I can gather the company’s value of its Asian assets (taking into consideration the potential fall-out of Alipay) is significantly more than what has been discounted in the stock price.
On the three year chart we note two things:
First, YHOO found major resistance in 2010 and so far in 2011 in an area between $18.50 and $19.00. At the time of the Alibaba news the stock was trading in that area and has since been knocked down to support.
The support area that YHOO currently sits on is an upward trend that originated back in November 2008 and was successfully tested in September 2010.
Zooming in closer brings us to the trading action from Wednesday. First, note that on Wednesday morning YHOO gapped down along with the rest of the market. The stock however found support at that three year uptrend (blue line) and managed to close above it.
Stochastics (not shown) are diverging from the stock price as the stock made a new recent low while stochatics are climbing.
For aggressive traders here the trade could be a long try now with an honest stop at Wednesday’s lows and a target price at $15.60. Mind you the ongoing broader market weakness makes longs more difficult here, so stops must be adhered to with great discipline. In my opinion a better probability long trade in YHOO would setup after a bullish daily close from current levels. Stops in that case could still be placed at Wednesday’s lows and a profit target near the 200 sma (red line).
Happy Trading!
Serge
