Yahoo Stock Is on the Verge of a Bullish Price Breakout

Yahoo StockYHOO Stock: All Signs Point North

Yahoo! Inc. (NASDAQ:YHOO) stock continues to behave in a constructive manner, which suggests that the year-to-date gains are set to continue. This notion is supported by the tech-heavy NASDAQ index that continues to make new all-time highs. A rising tide raises all boats, and this premise creates a tailwind that effectively pushes up an entire technology sector as valuations continue to rise.

Couple this phenomena with the bullish price action on the Yahoo stock chart, and I have the perfect ingredients to suggest that continued gains are likely for YHOO stock.

When I refer to Yahoo stock’s price action, I am referring to it within the context of technical analysis. The technical analysis style of investment analysis uses past volume and price data to discern trends and forecast future prices. I have been fine-tuning my skills in this form of analysis for nearly two decades, and it has become the basis of my investment views.

I have found it wise to always use multiple time frames to confirm one investment view. If all time frames agree, then I have more confidence in the view that is generated from these signals.

The following weekly stock chart of YHOO stock illustrates bullish price action followed by a bullish indicator which suggests that higher prices are likely.

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Chart courtesy of StockCharts.com

The Yahoo stock chart above illustrates the basic concept of resistance and support. This concept is based on the notion that, once a level of resistance/support is broken, it becomes a new level of support/resistance.

In the months between April through June of 2016, the price level of $38.00 was a sticking point, and the stock was unable to break above this level of resistance. In July 2016, YHOO stock was finally able to break above $38.00, and a significant rally ensued.

In September 2016, this rally peaked, and a correction in Yahoo stock ensued. This rally found support at the previous level of resistance, which is a now a new level of support. This price action serves to reaffirm that the break above resistance at $38.00 was legitimate.

After this new level of support was tested, a rally ensued, and a bullish moving average convergence/divergence (MACD) signal was generated. This signal is a simple and effective trend-following momentum indicator. This bullish cross indicates that the bulls are once again in control of Yahoo stock, and higher prices are expected to follow.

The following daily YHOO stock chart illustrates the bullish constructive price action that has sustained the advance stock.

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Chart courtesy of StockCharts.com

The YHOO stock chart above illustrates that the advance off of the February lows contained a wave structure that supports the view that higher Yahoo prices can be expected.

This wave structure consists of impulse waves that advance the price of Yahoo stock, and consolidation waves that unwind any overbought conditions in the stock while setting up the next advancing impulse wave.

In early April 2016, a golden cross was generated, suggesting that a new bull market had begun. This signal was generated when the faster 50-day moving average, highlighted in blue in the above chart, crossed above the slower 200-day moving average, highlighted in red. This popular tool among traders is used to confirm the direction of the prevailing trend.

The first consolidation wave was created just below resistance at $38.00, and the second consolidation wave tested this important level from above. This price action, coupled with the fact that the moving averages continue to remain in bullish alignment, continues to support the notion that higher prices are likely.

Yahoo stock is now sitting below the September highs, and a break above this level of resistance would suggest that significantly higher prices are set to follow.

The following YHOO stock chart illustrates the constructive pattern that is in development just below this level of resistance.

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Chart courtesy of StockCharts.com

The technical pattern that developed under resistance is referred to as a “cup and handle” pattern. The name effectively describes the shape of the pattern that has emerged on the Yahoo stock chart.

These patterns are especially constructive because, not only do they provide  the next direction in a trend, they also provide a price objective. This price objective can be obtained by taking the depth of the cup and extrapolating it above the horizontal resistance level.

A successful completion of the cup and handle would require Yahoo stock to close above the horizontal resistance level highlighted in blue in the above chart. This would suggest that higher prices are set to prevail, and I would be eyeing the $51.50 price objective suggested by the cup and handle pattern.

Bottom Line on Yahoo Stock

All indications from the stock chart continue to support the notion of higher YHOO stock prices. Given the circumstances that are present, I have no recourse but to be bullish on the stock. Abiding by the price action and technical indicators keeps my investment views disciplined. I will remain bullish on this stock until the the stock chart suggests that another view is warranted.