Yahoo (YHOO) is back on an acquisition spree … but its stock price is struggling to stay above water. The stock is at a critical juncture; a break here and the bears could pounce in a big way.
Let’s take a look at the technical setup and see what the future may hold.
The social media industry is coming out of its infancy and moving into an acquisition stage. Once a segment can establish itself such that larger players in the broader sector take notice, acquisitions take place. In the case of social media, this stage was reached some time ago — as evidenced by Facebook’s (FB) astronomical buyout of instant messaging platform WhatsApp.
To that end, Yahoo made headlines on Wednesday when it announced that it purchased Blink, a competitor to Facebook’s Snapchat application. Just like Snapchat, Blink is an instant-messaging platform where messages self-destruct after a predetermined amount of time. We don’t know how much Yahoo is paying for Blink.
Yahoo has been criticized by the analyst community over the years of falling behind the curve on the social media front and elsewhere. As such, I might have expected YHOO stock to react a little better than it did on Wednesday after the Blink announcement.
While YHOO stock price closed the session lower by nearly 70 basis points on Wednesday, considering where the stock currently finds itself technically, the stock actually reacted rather nonchalantly.
On the below chart looking back to September 2012, note that YHOO stock is sitting atop its uptrend (black line) and marginally below the 200 day simple moving average (red), although this latter point is somewhat less important than the uptrend line. Furthermore, the two medium-term simple moving averages, 50-day (yellow) and 100-day (blue) are curling lower. This is simply a reflection of the stock’s series of lower highs since January, but coupled with the uptrend line, something for the bulls to be concerned about.
On the daily chart note that YHOO stock has over the past month and a half found resistance three times near $37, last time coinciding with its 100-day moving average. The stock is looking increasingly heavy – bulls should be worries.
For those blindly long YHOO stock, taking some risk off the table would be a good bit of risk management at this juncture. For if YHOO breaks convincingly below $33.40 on a daily closing basis, the downside press could quickly accelerate and move YHOO stock toward the $30 area.
Active traders and investors could play such a breakdown as a short-side trade.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.