Back in December 2014, I picked Yahoo (YHOO) as my long-term stock pick of the year. At the time, it was technically ready to break above a 10-year high into a lot of free space, and it was caught up in the battle for valuation between zero (or negative ex- their Alibaba stake) and genius valuations.
Well you can see from the chart below of monthly price action that it has not panned out. In fact, YHOO stock is down more than 20% and I am in last place in the Best Stocks for 2015 contest.
Worse — it’s not even close. YHOO trails the No. 9 stock by a full 11 percentage points as of this writing.
In my personal account, I have long since stopped out of the position. That is the value of real life over a contest — I can set my maximum risk and then cut my losses when it gets to that point. You should have a plan like that, too. In fact, in the context of this year’s competition, a 5% loss is better than four of the other Best Stocks picks.
Yahoo Stock: Lessons in Technical Analysis
Yahoo is a great example for highlighting the pros and cons of technical analysis. In December it had a great set up and even started to trigger. But the failure is probably the most important part of the technical picture. I often say that technical analysis is about points of reflection not points of inflection. That means it is about possibility not certainty — a possible road map.
And this road map clearly had a wrong turn. This is why technical analysts are also known as risk managers. They look for possible trades and investments but have a focus on how to mitigate any risk before they trade. For me that was the stop loss.
A second point about technical analysis is that it is much better at helping determine price potential than it is about the timing. The chart of Yahoo actually still looks very good. Technically, it has pulled back from a bigger Cup and is forming the Handle of that pattern. As long as the price stays over $31, the Cup and Handle pattern would set a target to the upside of about $90.
This technical pattern just adds to the list of positives technically.
The price action this year can also be viewed as a Bullish Flag. The momentum indicator, RSI remains over 50 and bullish, and the accumulation/distribution statistic has stalled in its rise, but is not reversing.
Personally I might give up watching it if it falls below the early 2014 base around 34. But the potential is still there.
As of this writing, Greg Harmon did not hold a position in any of the aforementioned securities.
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