Chinese Internet stock Qihoo 360 Technology (QIHU) had a choppy stock price for its first two years as a publicly traded company, but lately, QIHU has strapped a rocket to its back.
After the March 2011 IPO, Qihoo stock dropped for a few months, 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, Qihoo 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, so the question as always is one of timing.
The best way that I have learned to tell when a momentum stock like Qihoo is done trending higher, at least for the medium-term, is by watching the stock’s reactions to single- or multiday selloffs. Given the trend-following that accompanies stocks like these, herd mentality often has investors jumping in and out of stocks as a group, thus marking clear changes in trends.
In the case of QIHU, late last week the stock exhibited some wild swings that took the stock marginally below its 21-day simple moving average, but a big rally Friday flipped the stock right back up. Stocks at the crossroads of a change in trend don’t act as such.
On Monday, all of this was topped off with continuation buying that pushed Qihoo stock to a fresh all-time high. (As a note, the stock opened 3% down Tuesday, but that movement hasn’t changed the broader picture.)
From here, while a downside reversal can happen at any point, QIHU remains bullish positioned within the confines of the June uptrending channel, while any break below and out of it would be a first bearish sign.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.