YHOO Stock: A Constructive Advance
Yahoo! Inc. (NASDAQ:YHOO) stock has finally completed the price pattern that was the subject of my previous publication on Yahoo stock. This completion was finally accomplished when YHOO stock exited this pattern in an upward direction.
Breaking out of this pattern now suggests that the correction that ensued after YHOO stock peaked in September 2016 is complete, and a new bullish trend has commenced in which the path of least resistance is to the upside.
The basis of my bullish conclusion is technical analysis, which uses historical price and volume data to discern trends and forecast future prices. This is the format I employ to analyze potential investments and develop trading strategies.
The following Yahoo stock chart illustrates the bullish implications of the price pattern that was just completed.
Chart courtesy of StockCharts.com
Bullish price action began in February 2016, and this price action continues to suggest that the path of least resistance is toward higher prices.
This bullish price action is defined by the wave structure that has characterized this advance. Impulse waves have advanced the price of Yahoo stock, and consolidation waves have served to unwind the overbought conditions in YHOO stock, as well as set up the next impulse wave. This cycle of waves is instrumental in maintaining the health of a trend. Healthy trends are orderly, and orderly trends are sustainable.
In mid-April, a golden cross was generated which confirmed that a new bullish trend had begun. A golden cross is produced when the faster 50-day moving average, highlighted in blue, crosses above the slower 200-day moving average, highlighted in red. As long as this indicator remains intact, it is assumed that the path of least resistance is toward higher prices.
I have been waiting for Yahoo stock to complete the consolidation channel that began shortly after YHOO stock peaked in September 2016. This price pattern was finally resolved in a bullish manner when this stock exited it in an upward direction. This bullish price action occurred just as the moving averages that generated the golden cross were converging.
The converging of the moving averages suggested that the golden cross was in danger of averting. The bullish resolution of the consolidation pattern suggests that this danger no longer exists because Yahoo stock is now set to resume its bullish trend via the development of a new impulse wave. Higher prices will cause the convergence of these moving averages to halt.
On multiple occasions, I have come across similar setups in which converging moving averages have created an environment where the price has accelerated in the direction of the predominant trend in order to avert generating a bearish signal. This means that this could be the beginning of an epic run in YHOO stock.
The following Yahoo stock chart illustrates that further signals continue to mount, and that the price action remains constructive.
Chart courtesy of StockCharts.com
This YHOO stock chart above illustrates that the level at which Yahoo stock found support was no coincidence.
This level that sits just above $38.00 was a previous level of resistance that thwarted every attempt to break above it in the months April–June 2016. YHOO stock was finally able to break above this resistance level in July 2016, and a significant rally ensued.
The price has a tendency to return to previous levels that have acted as resistance, and test them from above. This price action reaffirms that the break above resistance was legitimate, and it also serves to solidify that this is now a new level of price support.
The constructive bounce off of support has caused the moving average convergence/divergence (MACD) indicator to converge, and a bullish cross is possible in the weeks ahead. This indicator is a simple, yet effective trend-following momentum indicator. A bullish MACD cross would confirm that the bulls are once again in control of Yahoo stock, and higher prices could be expected to follow.
Bottom Line on Yahoo Stock
I am bullish on Yahoo stock because the price action and indicators suggest that higher prices are likely, and this notion is the basis of my bullish views. I will remain bullish on YHOO stock until a pattern and/or indicator suggests that this view is no longer warranted.