YHOO Stock: Bullish Setup
It has been more than three months since I took a long, hard look at Yahoo! Inc. (NASDAQ:YHOO) stock. In my last report on Yahoo stock, I outlined how the overall trend had become bullish, and how multiple indicators and patterns were supporting this bullish view.
At the time, Yahoo stock was trading at $42.24, and I had generated a target price on YHOO stock of $45.00, using the price pattern as my guide. I am sorry to say that the target price was not attained, as YHOO stock only managed to hit a high of $44.92 before a pullback ensued. I was so close, yet so far.
As much as I would love to ponder the past, the focus of this article is the current constructive setup that is occurring on the Yahoo stock chart. A slight downtrend has developed after the interim high of $44.92 was hit, but this downtrend pattern is constructive within an overall bullish trend.
The following YHOO stock chart illustrates the bullish trend that began off of the February lows.
Chart courtesy of StockCharts.com
The Yahoo stock chart above is an excellent example of a constructive healthy bullish trend.
The bullish move began when Yahoo stock surged off of the lows in a swift and linear motion. This type of price action is what traders refer to as an impulse wave. The wave that followed it is a consolidation wave, and this is where the price alleviates any overbought conditions that were caused when the price surged higher. The consolidation wave is also where the setup for the next advancing impulse wave is created.
After the first impulse wave was completed, a golden cross was generated. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. This signal confirms that a bull market is in progress, and it creates a bullish tailwind. As a result of this tailwind, bullish setup patterns have a higher likelihood of success.
It should have been no surprise that the consolidation wave that developed after the first impulse wave gave way to another impulse wave higher. The golden cross was engaged and it supported this outcome.
These series of waves are where I was able to obtain a price objective of $45.00. It is common for impulse waves separated by a consolidation wave to match in duration and length. The first impulse wave was approximately $10.00 in duration, so I assumed that the next impulse wave would match.
This brings us to the present, and once again YHOO stock is creating another consolidation wave. This one is different than the wave that separated the first two impulse waves, as this pattern is a downward sloping channel. As time progresses, the price will continue to drop. This pattern will resolve itself when the price breaks above or below the channel that has contained it.
Resistance outlined by the consolidation channel is currently being tested, and there is a pattern that is embedded within it that suggests that a bullish outcome is a possibility.
The following Yahoo stock chart illustrates the pattern that is embedded within the consolidation channel.
Chart courtesy of StockCharts.com
The Yahoo stock chart above illustrates that there is a small head and shoulders pattern embedded within the consolidation channel.
A head and shoulders pattern contains three troughs and a neckline. The middle trough (the head) is the largest, and the first and third troughs (the shoulders) are usually of equal size. The neckline is formed by connecting the reaction highs. This pattern is confirmed when the price closes above the neckline, and this indicates that the trend has reversed.
A pattern setting up within the channel is quite constructive, as the breakout of the consolidation wave will be quite powerful. There is still the 50-day moving average that could cause some resistance, so I would wait for a close above that moving average before I am convinced that the consolidation wave is complete and that a new impulse wave is in development.
A successful completion of the consolidation wave would allude to higher prices. The 2014 high for YHOO stock was at $52.62, so that price would be the next logical price objective above $45.00.
Bottom Line on Yahoo Stock
I am bullish on Yahoo stock because bullish signals continue to dominate the chart landscape. I am awaiting a resolution of the current consolidation wave, as this would signal that another advance in YHOO stock is underway.