YHOO: Bull play, channel rules

The information company Yahoo! Inc. (YHOO), headquartered in Sunnyvale, California, closed above its 20-day price channel on Thursday and traded still higher on Friday, confirming the bull signal.

[YHOO in Wikipedia]

YHOO

Direction

YHOO has been in a downtrend since October 2014. The present bull signal represents a break above near term resistance.

However, the reversal of the past two days (in the yellow oval on the chart) is of insufficient magnitude to mark an end to the downtrend from the peak. It may eventually develop into a renewal of the prior uptrend, but it's not there yet.

A push above the peak, or even above the last major interim high of the downtrend, would buttress the case in favor of YHOO having resumed its rise.

Traditional chart analysis expects gaps, such as that on Jan. 29, to be filled, meaning the price retraces to the mid-point. The January gap, marked red arrow, has a mid-point of $45.05, and it was filled in trading on Thursday. Under the traditional rules, the next move is expected to be downward.

Click on chart to enlarge.

YHOO 90 days hourly bars

Volatility

Implied volatility stands at 27%, in the 39th percentile of the most recent rise.

That relative level implies that the position should be structured as a long options spread, bought with a debit and expiring in July.

At this point I an cut short the analysis and move directly to a decision.

Decision for My Account

The bull signal on YHOO can at best be labelled as a near-term counter-trend correction and so fails my criteria for a trade. A further rise would change that assessment. The implied volatility level commits me to a position lasting until June or July, a period far to lengthy for the small magnitude of the upward reversal.

-- Tim Bovee, Portland, Oregon, March 20, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which can be read here.


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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.