is off to a fast start in 2013, driven mainly by hopes that
recently appointed CEO Marissa Mayer will fulfill her high
She's already done a wonderful job. Though revenue was flat from
2011 to 2012, net income surged to $3.9 billion from $1 billion
during the same period. The stock is up nearly 25% this year, and
it's climbed from around $14 to $24 in seven months.
Recent results have also been solid. YHOO reported an 11.6%
sequential and 48.7% year-over-year increase in earnings for the
first quarter. Revenue, however, was down 6.6% from last year.
Investors apparently chose to focus on this decline, as YHOO
plunged 4% following the announcement.
However, the shares recovered and finished only a percent lower.
Moreover, the stock has risen to a level that's higher than where
it traded before earnings. This suggests that investors
overreacted to the sales miss, and YHOO could be ready to notch
another new rally high.
The shares have spent a lot of time in the $23 vicinity (blue
circle). And the fact that the shares found support and rallied
from this price suggests that investors were buying.
Additionally, volume has picked up dramatically near the $23
region (blue arrows). This is an important development because
large volume is a sign that mutual funds are active. When volume
is above average and the shares are moving higher, there's a good
chance that mutual funds are buying as opposed to selling.
In addition to the mutual fund activity, YHOO should have very
strong support near the 50-day moving average (orange line).
Investors often will buy near the 50-day. Given that this trend
line has been such a tough nut to crack since October, I'd expect
it to continue to provide support to the bullish trend.
This chart shows the price of
shares along with an important support line to
The next few weeks will be very telling for YHOO. It needs to
rise above the previous highs near $25 while protecting the
recent lows near $22.50 in order to continue its rally. Given the
high volume and rising 50-day moving average, the odds favor
another burst higher.
However, if that trend line fails to provide support, traders
must exit the stock, while long-term investors should expect a
retreat to $21. Though I like YHOO's long-term prospects, its
short-term direction remains murky.
Equities mentioned in this article: YHOO
Positions held in companies mentioned above: