Yahoo (YHOO) managed to double its stock price year-to-date, among a flurry of news headlines, a CEO who’s still formulating a new strategy, and a constantly changing game for internet content providers. At the beginning of the year, analysts cried wolf about the dwindling prospects for the company, in the shadows of rival Google (GOOG). But as it so often goes, consensus got it wrong and the stock rewarded those with an open and flexible mind, including many trend followers.
With this big performance of YHOO stock in 2013, one would thus also expect to see a flurry of stock upgrades to follow. The latest upgrade came on Dec. 9, when RBC Capital Markets issued a bullish note on the stock as a result of its positive outlook for the company’s assets in China, particularly Alibaba Group. RBC raised its price target for YHOO stock from $38 to $44.
From a long-term point of view, the weekly chart shows that YHOO stock has recently bumped into a resistance area that dates back to late 2004 and spans anywhere from $40-$44. Given that resistance zone and the stock’s steep slope in recent years, risk/reward on the long side of YHOO stock is no longer as juicy for the medium term. The stock likely needs to consolidate for a few months and build a better base from which it can ultimately work higher again.
On the daily chart, the breakout that took place in early November from a bullish wedge formation has now also reached its target. This target was simply measured by applying the eight point move into the bullish wedge, and adding it as an extension target above the wedge.
So, with the near-term upside target met and YHOO stock working inside a long-term resistance area, the easy money on the long side of the stock is likely over for some time. YHOO stock needs to consolidate before better risk/reward again comes about on the long side.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.