by Serge Berger | January 30, 2014 8:13 am
Yahoo (YHOO) tumbled hard yesterday, with YHOO stock down nearly 9% following the company’s fourth-quarter results for 2013, causing further near-term technical damage to its chart.
After Tuesday’s closed, Yahoo reported earnings that improved 44% year-over-year to 46 cents per share, topping Street estimates for 38 cents. On the top line, however, YHOO looked much less attractive, posting revenues of $1.2 billion — that matched estimates, but was down 2% year-over-year.
In terms of sales guidance for the current quarter, Yahoo now sees revs coming in the range of $1.06 billion-$1.10 billion, and that captures the current Street estimates for the quarter of around $1.08 billion. During the sales call, YHOO reiterated its commitment to mobile and also said that its blogging platform Tumblr is seeing significant revenue and user growth.
For traders and investors, however, the news was decidedly more negative than positive, leading them to sell YHOO stock down to the tune of 8.7% in Wednesday trading, causing further near-term technical damage to its chart.
Two weeks ago on Jan. 17, I last discussed the charts of YHOO stock as it toyed with a resistance area that dates back to 2006. My takeaway at the time was that this big-time resistance area would not give without a fight, and that the near-term charts were beginning to look weak and traders needed to wait for Yahoo earnings to pass to get a better trading setup.
Fast-forward to today: Earnings have passed, and the reaction to Yahoo was negative … but traders now have some better reference levels to focus around.
For quick reference, below is the longer-dated chart of YHOO stock, where the major resistance area is highlighted by the two blue bubbles. Considering the steepness of the stock’s slope since the latest rally began in late 2012, YHOO stock in the near-term has plenty of downside — however, for now, it should be looked at as healthy consolidation/mean-reversion.
On the daily chart, after breaking below the the 50-day simple moving average (yellow) last week, Wednesday’s selloff has now also taken out the next support level: the 100-day SMA (blue), which had acted as support since 2012. This heavy feel of YHOO stock now puts it in a good spot for short sellers to push toward a more meaningful mean-reversion over coming weeks, which has a better downside target that is currently closer to the $31-$32 area and is made up of the 2012 uptrend (black) and the 200-day SMA (red).
Currently, this downside target is another 7% to 8% away, but that percentage will change as the moving average continues to rise.
YHOO stock has broken key near-term support levels after a great run in 2013, and bulls need to exercise more patience while bears can try the short side of YHOO with defined risk measures in place.
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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.
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