With traders showing mixed feelings about Yahoo!’s (YHOO) earnings report today after the close, we consulted what the Profit Scanner powered by Recognia had to say about the tech stock’s prospects after delivering its numbers.
There are several ways to play Yahoo stock’s earnings report, but, ultimately, a trader’s outlook depends on the timeframe. It’s not unusual for stocks to be bullish in the short-term but have a weaker intermediate- or long-term picture – or vice versa.
YHOO’s near-term technical picture is relatively rosy with several bullish signals appearing within the last week. This could coincide with positive expectations for the company’s earnings.
April 8, Yahoo stock’s chart flashed a bullish Relative Strength Index (RSI) signal, which measures the strength of an issue compared to its recent history of price change by comparing “up” periods to “down” periods. A bullish RSI tells traders we may be seeing higher prices prices as the price seems to be recovering from oversold as losses on down periods are no longer overwhelming gains on up periods to the same extent. It’s based on the premise that overbought conditions tend to occur after the market has advanced for a disproportionate number of periods. (However, the RSI should not be confused with relative strength which compares a financial instrument it a market index.)
Then, April 9, Yahoo stock closed with a bullish fast stochastic signal on its chart, and on April 10, YHOO closed with a slow stochastics signal. “Slow” and “fast” refer to the With a bullish stochastics event occurs on a chart, it tells traders that higher prices may be ahead as the price has risen out of oversold conditions.
The difference between a “slow” and “fast” stochastic has to do with how sensitive each one is to detecting price changes in the underlying stock. The fast stochastic identifies changes in the price much more readily than the slow stochastic does, but both are important to technical traders.
However, the intermediate-term picture for Yahoo stock gets a little weaker, with several bearish signals appearing on YHOO’s chart at the end of March including a bearish cross of the 21-week moving average on March 28 and bearish cross of the 50-day moving average on March 20. (Find out why moving average crosses are important here.)
Yahoo stock’s long-term technical picture shows further breakdown in the stock is possible with a bearish cross of the 200-day moving average occurring on April 10, and a bearish Head and Shoulders Top pattern forming on YHOO’s chart on March 25.
The bearish Head and Shoulders Top tells traders a stock’s price seems to have reached the end of a period of “distribution” at the top of a major uptrend, with the break down through support signaling a reversal to a new downtrend.
This Head and Shoulders Top is expected to resolve within approximately 135 trading days with a downside target of $27.25 to $28.75. While Yahoo stock’s short-term picture shows some upward potential, a drop from its current $34 level to that bearish target would represent an 18% to 24% decline in approximately seven months
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